Costco Stock Falls As Revenue Misses Estimates in Fiscal Q4

Shares of big-box retailer Costco (NASDAQ: COST) are down 2.5% in pre-market trading today. The company announced its fiscal fourth quarter of 2022 results (ended in August) after the market closed on Thursday and reported revenue of $70.76 billion with adjusted earnings of $4.20 per share. Comparatively, analysts forecast revenue at $72.04 billion and adjusted earnings at $4.16 per share.

We can see that while Costco met earnings estimates, it missed revenue forecasts in Q4. In the year-ago quarter, Costs reported revenue of $62.67 billion and adjusted earnings of $3.9 per share. 

While sales surged by 15.2% year-over-year, adjusted earnings were up 7.7% year-over-year in the August quarter. Net sales for fiscal 2022 grew by 16% to $222.73 billion, up from $192 billion in the prior year.

Let’s see if Costco is a top stock to buy right now, following its Q4 results.

Costco is part of a recession-proof industry

The global economy is cyclical, which means a recession is inevitable. In the last year, the federal government has hiked interest rates multiple times to offset inflation. Most experts believe interest rate increases will lead to a recession due to lower consumer spending. The triple whammy of higher debt, inflation, and an economic slowdown will negatively impact the revenue and earnings of most corporations.

And these recessionary periods can be brutal for investors. Major stock market indices such as the S&P 500 and Nasdaq Composite have already fallen by 21% and 31%, respectively, from all-time highs. Even Costco stock is down 20% from record highs.

But Costco is also part of a sector that is relatively immune to economic cycles. In a recession, households reduce discretionary expenses and buy lower-priced products. Several optional expenses are eliminated as individuals spend more money at dollar stores and discount retailers such as Costco. A membership-only warehouse store operator, Costco allows customers to enhance their savings by purchasing goods in bulk.

Despite an inflationary environment, Costco is forecast to increase sales by 8% to $245 billion in fiscal 2023. Comparatively, adjusted earnings are forecast to rise over 13% to $14.53 per share.

Is Costco stock a buy right now?

Costco releases its comparable-store sales numbers for its business units each month. While the early stage of the pandemic impacted Costco, its overall comps growth has increased by at least 10% for 27 consecutive months. The last time Costco’s comps growth dived below 10% was back in May 2020, when it stood at 5.4%.

These figures are quite staggering when you consider the size of Costco. The brick-and-mortar retailer reported over $200 billion in annual revenue for the first time in fiscal 2022, and it continues to deliver robust growth.

A consumer staples company, Costco sells essential goods. So, it derives cash flows across business cycles. Its membership program is also a cash cow for the company. Priced at $60 each year, Costco’s cards can be used at any warehouse globally.

The company ended the last month with 116.6 million members, suggesting revenue from this vertical stands at almost $7 billion each year. Further, Costco’s membership renewal rate in North America is well over 92%.

Costco stock is expensive

Despite the pullback, Costco stock is priced at 33.5x forward earnings, which is twice the S&P 500 average of 17.6x. We can see investors are paying a hefty premium to own Costco shares. But analysts remain bullish on the company and expect the stock to surge by 20% in the next year.

Related: F: Why is Ford Motor Stock Down?