My Favorite Warehouse Retailer’s Outlook Is Strong

Editor’s note: Our Chaikin Analytics offices will be closed this Thursday and Friday for the Thanksgiving holiday. Because of that, we won’t publish Chaikin PowerFeed. Our normal publishing schedule will resume on Monday, November 28. Enjoy the long weekend…


With all the volatility of earnings season, it’s refreshing to see some companies doing well…

Walmart (WMT) reported earnings on November 15. And it went better than expected…

The retail giant’s comparable U.S. sales rose 8.2% over the past year. It mentioned strong sales in groceries, store brands, and seasonal items. And it also raised its sales outlook.

As a result, its stock gained around 7% that day.

Then, before the markets opened on November 17, Macy’s (M) reported earnings…

The department-store chain’s sales fell in the most recent quarter. But importantly, it did a fantastic job clearing out the overstocked inventory that I discussed in August.

So the stock surged 15% that day.

Not all retailers are doing well, though…

In the third quarter, Target’s (TGT) profits fell about 50% year over year. And the company warned of a soft fourth quarter. The stock plunged 13% after the November 16 report.

So today, let’s look at why Walmart’s report is a critical piece of data. It could give us a hint about what to expect when my favorite warehouse retailer reports in a couple weeks…

Importantly, Walmart reported increased foot traffic in the third quarter. In its earnings report, it cited a 2.1% rise in the number of shoppers over the previous quarter.

That’s always good. More visitors increase the likelihood of more sales.

I already mentioned Walmart’s year-over-year sales gain earlier. And by looking at where a big chunk of that increase came from, we can focus on an interesting tidbit…

In short, sales in the Sam’s Club division jumped 10% year over year. Growth like that in a major division is great to see. It’s a strong indicator that the entire market segment is doing well.

And it bodes very well for my favorite warehouse retailer – Costco Wholesale (COST).

In other words… if the trend holds, Costco should produce a good financial report as well.

But a good financial report isn’t the only thing that matters…

Guidance is also a key factor in a stock’s performance after an earnings report. That relates to whether the company believes the previous trends will continue going forward or not.

And as I said, Walmart just raised its guidance. That’s an important development, too…

We’re still in an uncertain economic environment today. So when a company as big as Walmart is optimistic moving forward, it’s a great sign for other retailers like Costco.

In the end, as always, we can use the Power Gauge as our guiding light…

The system just flipped to a “bullish” overall ranking for Costco this week. It’s also “bullish” in the Earnings category. That’s the factor group we’re trying to hone in on with this essay.

So our takeaway is simple…

Keep your eye on Costco’s December 8 earnings report. This stock could be ready for a big move higher.

Good investing,

Karina Kovalcik

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