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Softer sales expected from Costco

Traders are expecting the tough underlying retail markets to take their toll on Costco.

Costco store
Source: Bloomberg

On Wednesday 10 December we are expecting Costco to post its first-quarter figures. Adjusted earnings per share are due to drop from 158 cents down to 108.2 cents, driven lower by sales of $26.871 billion down from last quarter’s $35.523 billion. This is expected to see the company post weaker pre-tax profits of $739 million off from the previous quarter’s $1.086 billion.

As consumer spending has been compressed, in no small part due to the increasingly low rate of annual earnings, retail firms have found margins squeezed. Costco Wholesale Corporation has found that its branches of discount stores have struggled in this last quarter.

Black Friday to Cyber Monday has been estimated to generate 140 million in-store and online shoppers for the US retail markets. The initial indication from the National Retail Federation is that figures have fallen by 11% from 2013. As well as shopper numbers being lower, indications are that average spending has fallen too.

Since January 2010, shares in Costco have seen a 136% increase from just over $60 up to the current levels over $142. The old market adage that the trend is your friend, has been solidly in place for much of this move. A word of caution around the current price, especially as it has diverged away from the 200-day moving average to such an extent.

A correction bringing it closer in-line with this level would need to be seen in conjunction with the relative strength index moving back out of the overbought region.  

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