Praveen Paramasivam, Ananya Mariam Rajesh

(Reuters] Costco Wholesale Corp expects to report a surge in quarterly earnings for Thursday. The reason is that Americans still have a lot of spending power and store memberships, despite the rising inflation which has impacted profits of many major U.S. retail chains.

Walmart Inc. (NYSE:) Target Corp (NYSE: )’s grim profit projections have rattled the retail sector and shown the inability of low-income households spend discretionary items.

Costco (NASDAQ) is however in the sweet spot. An average Costco customer makes more than an average Walmart or Target customer in one year. Memberships are also driven by Costco’s efforts keep gasoline prices at a fraction of the national average.

Costco makes a large portion of its profits from membership fees. 4b5b1957-a57b-434f-8623-4c254ed791821

D.A. Michael Baker, a Davidson analyst, told Reuters. According to Michael Baker, Davidson analyst, the gas business is driving traffic to the lot. Then somewhere between 30% and half of these customers go into the club and buy something.

Analysts will also monitor the effect of China’s COVID-19 lockdowns in Costco’s supply chains. This warehouse club sells many Chinese-made products, including clothing and iPhones.

CONTEXT

BJ’s Wholesale Club Holdings Inc, Costco’s small rival reported last week a quarter-over estimate profit. This was due to higher income customers shopping more and compensating for slower spending by others.

Bob Eddy (BJ’s Wholesale Club Chief Executive) stated on an earnings call that “the benefit at higher income cohorts has frankly been a little more than what we anticipated.”

THE FUNDAMENTALS

* Analysts polled by Refinitiv, on average, expect Costco to earn $3.04 per share for the third quarter, an increase of over 10% from a year earlier.

* Costco reported same-store sales growth, excluding the impacts from changes in gasoline prices and foreign exchange, of 12.2% and 8.7% for March and April, respectively. The third quarter of the chain usually ends around May. a29b26ca-411a-42c3-9249-ef3d339d3dff2

WALL ST. SENTIMENT

* The current average rating among 37 analysts is “buy”, with none of them having a “sell” rating on Costco’s shares.

* The median price target (PT) is $581.50, 33% above Tuesday’s close and 3% lower from a month earlier, in light of five PT cuts since Walmart’s results.

Most of Costco customers have household income of over $100k a yearhttps://tmsnrt.rs/3PJqnIOimage/pnggraphics:graphic:1https://graphics.reuters.com/USA-RETAIL/mopanzwljva/chart.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GXID:mopanzwljvaCostco’s net income to outperform Walmart and Targethttps://tmsnrt.rs/3LJia3Vimage/pnggraphics:graphic:1https://graphics.reuters.com/USA-RETAIL/movanzwgxpa/chart.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GXID:movanzwgxpa