Ca$htag$: Consumer Demand Lifts COST, Margins & Guidance Key in Earnings

SPEAKER_1 (0:00)

Time now for our Cache Tag segment. For that, let's bring in our next guest, and that is Andy Swan, co-founder of LikeFolio with new sentiment data on Costco. Ahead of its quarterly results, Andy. All right, Costco has a big test in front of it with its earnings due.

What does the latest sentiment data look like for you all?

Andy Swan (0:18)

It looks really good for Costco. We love what we're seeing from the consumer action on Costco. When we look at it versus peers, Costco up 17 percent year-over-year and customer demand growth, which really folds nicely into what Costco's already reported on its revenue line. So we're going into this earnings call, revenues already baked into the cake. It's more about margins and membership growth. And what we see at LikeFolio from a consumer demand perspective is Costco is in exactly the right position and they're exactly the right company to take advantage of it, because consumers are trading down for value. The big box retailers, Walmart, BJs, and then we threw Target in there as a turnaround story comparison. But Costco is at the top of the heap of those that aren't executing on a very significant turnaround. And they're in the perfect spot to catch this tailwind of consumers looking for value, looking for relief at the gas pump.

It's a natural thing for people when they're trying to save money, to start seeking out these memberships, and Costco has one of the best reputations in the business. So with the stock down going into this earnings report, all indications from LikeFolio consumer data, the company's own revenue reports, its online channels, all looking good. We see all systems go here for Costco.

SPEAKER_3 (1:55)

Andy, this membership-driven cash machine is showing really no signs of slowing down. Here's some of the numbers. Renewal rates, 92 percent.

Gross membership income nearing $9 billion.

Their profit pool accelerating into fiscal 26 Your data shows exactly that. But what it also shows is that the stock has struggled. Why do you think, do you have any idea why that is? Because this is another one of those indicators. You guys are having on fire with your data this week. The data yesterday on RoboTaxi was incredible. Today, you're showing a big dispersion between the data and the price of the stock. Do you have any reason why that might be happening or is it just, or you see it as a pure opportunity?

Andy Swan (2:51)

Well, we do see it as a pure opportunity. I think that the reason that that's happening is because the stock hit that $1,000 roll.

It caught some momentum. It got momentum traders into the name earlier in the year. It may have gotten ahead of itself a little bit. The pullback from a spike high, we don't really worry about. We do think that from a range perspective, it's at a really attractive spot here. Again, just like you just said, Costco executes so well for their customers and for their shareholders, that it's very difficult to bet against them, especially when they're riding a tailwind like this. Everything that we're seeing is that the Costco customer is happier than ever, that there's more people considering Costco membership than ever before, and all of it adds up to making sense because, as we know, everyone's looking for a little bit of relief at the pump, at the grocery store, all the areas that Costco really excels. And so, we see the stock price here as a significant opportunity. We think that short term it's an opportunity, and we're very confident that long term, Costco is a very solid place to be invested. And again, I just have to reiterate, this is one of the best companies in the world that I think investors have a chance to buy on the dip as we go into a season and an upcoming year where everything is shifting Costco's way.

SPEAKER_1 (4:40)

Listen, I love Costco. I'm planning to head there this weekend, Andy. But Kevin does make a great point about shares. I mean, they haven't done a lot over the past year and year to date. We're looking for earnings of 648 per share on an adjusted basis, which would be higher than a year ago. Revenue, we're looking for that to come in above 94.8 billion.

Let's talk about your earnings score. What's the earnings score you got on this one, Andy?

Andy Swan (5:08)

Yeah, we're positive. We're bullish going into this earnings report. Again, Costco is a tough one to trade earnings on because unlike other companies, they've pre-reported their revenue. So it's really a bet on profit margins. It's a bet on total membership numbers. On the first one of those, we don't have great insight into how much the company is spending to acquire these customers or what the profit margins are with tariffs, etc.