By Sabrina Escobar

Investors are waiting for word on how tariffs will affect Costco Wholesale's business as the discount retailer reports what is expected to be another quarter of strong results.

Wall Street is projecting Costco will post second-quarter earnings of $4.09 a share on $63.1 billion in revenue, according to FactSet.

Costco's December and January sales reports were strong. The only uncertainty is how revenue fared in February. Other retailers, including Target, have warned that the month got off to a slow start.

Costco may also have been affected as consumers pulled back, but analysts say that probably isn't the case. Rupesh Parikh, an analyst at Oppenheimer, expects momentum in its sales continued well throughout the month -- and will continue to do so as tariffs and other policy changes rattle consumers. President Donald Trump's 25% tariffs on Mexican and Canadian imports went into effect on Tuesday, as did an additional 10% levy on Chinese goods.

"As we look at the current backdrop with accelerating inflation pressures and tariff risks, we believe the company's superior value proposition and ability to adjust product mix should help drive further market share gains and manage margins better than peers should tariffs come to fruition in a material fashion," Parikh wrote. He has an Outperform rating on the shares.

The focus on commentary from Costco comes after Target CEO Brian Cornell said on Tuesday that he expected some prices for produce to move higher in response to the tariffs on Mexico.

Costco may have an advantage over competitors when it comes to navigating a more inflationary environment: Membership fees account for more than 70% of the company's operating profits, estimated Edward Jones analyst Bryan Yarbrough. That allows the company to generate profit at lower prices than other retailers.

"Many retailers are not able to match the low prices, and this should continue to drive sales over the longer term," he added. Yarbrough has a Hold rating on the shares.

It isn't clear that a solid quarter will help boost Costco stock. The shares are near record highs, trading at nearly 55 times the earnings expected for next year. That premium price tag reflects expectations that nothing but a blowout quarter can meet.

Indeed, the stock has declined following three of the past four earnings reports. Investors looking to add to their positions should consider taking advantage of the dip, Oppenheimer's Parikh wrote.

Costco stock has gained 14% this year, outperforming the S&P 500's 0.7% decline.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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March 06, 2025 10:10 ET (15:10 GMT)

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