Should Investors Be Listening to What Costco’s Numbers Say?
There are lots of great benchmark stocks to consider, and I’m not talking in terms of potential investments—they can help shape your market view and expectations for corporate earnings, too. One such company that’s worth following is Costco Wholesale Corporation (COST), which is a very good retail operator and a proven wealth creator for stockholders.
Costco recently reported its numbers for its first fiscal quarter of 2015 (ended November 23, 2014), surprising the Street with their strength.
According to the company, quarterly sales grew a solid seven percent over the same quarter last year to $26.28 billion. International sales during the quarter were just about flat comparatively, but U.S. comparable sales grew six percent, which is a very solid number for retail.
Membership fees, which are pure gravy for the company, grew solidly to $582 million, up from $549 million in the most recent quarter. And profitability was tops with diluted earnings per share growing 16.7% over the same quarter last year.
With the stock market and investor sentiment gyrating on weak oil prices, I’m reminded that the most important news in the marketplace is what businesses actually report about their operations.
Costco Wholesale’s November sales numbers were also strong and that’s a good sign going into 2015.
However, the company’s shares are pricey; it is fully valued with only incremental gains being a reasonable expectation near-term. Nevertheless, the company’s numbers are good and they’re a solid indicator in the retail space.
The broader market recently broke its oil-induced price weakness on the back of strong retail sales data.
Confirming the more positive trend in retail spending are good numbers coming from the restaurant sector, suggesting consumer spending and confidence is on the upswing. (See “Where You Can Find Value in Stocks Right Now.”)
Share prices for both Target Corporation (TGT) and Wal-Mart Stores Inc. (WMT) recently broke out to the upside quite significantly. Earnings estimates for these retailers have been going up for multiple upcoming periods.
While my stock market outlook is modest for 2015, considering its performance over the last two years and going by what corporations are saying about their operations, it’s reasonable to expect high-single-digit to low-double-digit earnings growth going forward.
Retail numbers are pretty good, and that’s what a consumer economy needs. I think the upcoming fourth-quarter earnings season is going to be strong, and this will be the catalyst for further near-term gains in stocks.
Across the supply chain, lower oil prices are going to help a lot of businesses. Even a company like Costco will benefit from lower fuel prices for its fleet, and the spread between wholesale and retail margins in gasoline should keep padding earnings as it did in the company’s most recent quarter.
Other than a change in monetary policy or some other kind of shock to the system, corporate reporting is your most valuable tool in shaping your expectations for stocks going forward.
