MW Costco's results will show us how important bargains still are for shoppers

By Bill Peters

Earnings Watch: GameStop, Adobe also report

Quarterly earnings releases from Costco Wholesale Corp., the massive warehouse retailer that has become a religion of sorts for millions of shoppers, are often kind of boring. Bare bones, basically just the numbers, not even canned quotes from executives.

But when the company reports quarterly results on Thursday, the financials and earnings call will offer more narrative on one of the bigger trends in retail this year: The apparent gap between Costco $(COST)$, Walmart Inc. $(WMT)$ and Amazon.com Inc. $(AMZN)$ and everyone else.

Costco's stock is up more than 50% so far this year, as bargains, in a time of enduring inflation aggravations, continue to reign supreme in the minds of shoppers, leading them to turn to some - though maybe not all - of the mass retailers better equipped to keep prices lower.

Against that backdrop, analysts say the big three now pose a bigger competitive threat to smaller retailers - dollar stores, beauty shops, gas stations and convenience stores - and even bigger ones, like Target Corp. $(TGT)$ While Costco's sales came up a bit shy of Wall Street's estimates when it reported quarterly results in September, management said the company had converted more people under age 40 into members, even as it raises membership fees.

It also said its customers were starting to spend more on things that weren't food. But while people snapped up gold, jewelry and toys in its stores, they were still waiting for deals on appliances and electronics.

"It's very clear that quality and value have never been more important," Chief Financial Officer Gary Millerchip said on the company's earnings call in September.

Still, over the past three months, the tighter Thanksgiving-to-Christmas window, the brief East Coast port strike and two powerful hurricanes in the Southeastern U.S. have all hurt - or helped - sales in one way or another. But analysts were unfazed.

"From here, we believe continued strong performance in discretionary coupled with grocery momentum should help to sustain healthy top-line momentum," Oppenheimer analysts said in a research note this month.

Even as customers grapple with higher costs of living, Wall Street continues to stay upbeat on corporate profit overall. According to a FactSet report released on Friday, Wall Street analysts currently expect S&P 500 per-share profit overall for next year to reach $275.24. That would be the highest level since at least 1996.

However, the firm noted, analysts, historically, tend to overestimate that figure.

This week in earnings

Outside Costco, online fashion marketplaces Rent the Runway Inc. $(RENT)$ and Stitch Fix Inc. (SFIX) report results, as clothing retailers fight for relevance amid weaker demand. Handbag maker Vera Bradley Inc. (VRA) and G-III Apparel Group (GIII) - which owns brands like DKNY and Karl Lagerfeld - will also issue quarterly earnings. Discount retailer Ollie's Bargain Outlet Holdings Inc. $(OLLI)$ reports, as shoppers stay on the lookout for stores offering deals.

Chipmaker Broadcom Inc. $(AVGO)$ also delivers results, as it tries to capitalize on demand for artificial-intelligence technology. AI will also be in focus when Adobe Inc. $(ADBE)$ and Oracle Inc. $(ORCL)$ report during the week.

Elsewhere, United Natural Foods Inc. $(UNFI)$, Toll Brothers Inc. $(TOL)$, HealthEquity Inc. (HQY), C3.ai Inc. (AI) and Autozone Inc. $(AZO)$ also report.

The call to put on your calendar (assuming it happens)

Macy's: Last month, Macy's Inc. $(MIMI)$ said an employee tried to hide as much as $154 million in expenses, and the department-store chain pushed back the timing of its quarterly earnings to finish an investigation into the matter. The company released preliminary quarterly figures at that time, and said it expected full results, with an earnings call, would happen "by December 11," or Wednesday.

When asked last week to confirm whether the full results and conference call would take place on Wednesday, the company referred back to last month's announcement. It declined to say whether those events would happen at a different point during the week.

Either way, the call, whenever it happens, could offer more detail on the investigation and the employee, who Macy's said "is no longer employed by the company." And it will be a chance for executives to provide color on the state of holiday shopping and its efforts to try new things at its stores.

The number to watch

GameStop stock price: "Time for high volume?" That's one possible interpretation of a meme posted last week by meme-stock whisperer Keith Gill, aka Roaring Kitty. Shares of video-game retailer and original meme stock GameStop Corp. $(GME)$ went higher after that post. And while analysts still have questions about the actual business fundamentals - Wedbush's Michael Pachter on Friday called the chain "lost in the digital age" - we'll see if GameStop's results on Tuesday might offer any additional burst of share momentum, as markets approach the four-year anniversary of the stock's initial epic, short-seller-busting run higher.

-Bill Peters

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December 08, 2024 10:01 ET (15:01 GMT)

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