Goldman Expects Modestly Positive Reaction to Costo's (COST) Q1 Print

Goldman Sachs analyst Matthew J. Fassler expects a modestly positive reaction to Costco Wholesale's (NASDAQ: COST) Q1 results.

"We expect a modestly positive reaction this print. EPS beat consensus, but the benefit of the recent slide in gas prices on gross margin had been well telegraphed. Key questions for the upcoming call include the magnitude of the gas benefit to gross margin; growth in membership and renewal rates; capital allocation (i.e. buybacks); and drivers of the spike in interest & other income," said Fassler.

"Membership fee income of $582mn grew 6% yoy, and precisely matched our forecast," continued the analyst. "Sales had already been reported. Gross margin (measured on retail sales vs. total revenue) expanded 22bps yoy – the sharpest rise since F2Q10 – likely driven by the recent slide in gas prices. It tracked 4bps short of our forecast. SG&A dollars tracked slightly above our model ($2.696bn vs. our $2.689bn) and the expense ratio (measured on total revenue) deleveraged slightly yoy. EBIT margin missed our forecast by 6bps; 4bps from gross margin, and 2bps from higher SG&A, but still expanded yoy for the second consecutive quarter after trending down for four quarters prior to that. Interest & other income was higher than our estimate, adding $14mn of pre-tax income ($0.02 to EPS). Tax rate tracked above our model (35.2% vs. 34.6%), and hit EPS by $0.01. Inventory grew less than our forecast and slower than sales."

For an analyst ratings summary and ratings history on Costco Wholesale click here. For more ratings news on Costco Wholesale click here.

Shares of Costco Wholesale closed at $143.04 yesterday.

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