Peeking into the Future: A Look at Toll Brothers and Costco’s Earnings Reports

May 23, 2023

As we approach the twilight of this quarter’s earnings season, a couple of substantial players linger. American luxury homebuilder, Toll Brothers (TOL), will present its financial results post-market today, while multinational corporation Costco (COST) – known for its membership-only retail warehouses – is set to announce its earnings on Thursday. Both will provide crucial insights into the current state of the economy and consumer behaviour.

The financial analytics firm Zacks predicts Toll Brothers’ second-quarter earnings per share (EPS) to be $1.89, with revenue amounting to approximately $2.07 billion. Should this be the case, it would signify a year-on-year decline of over 9%. As a homebuilding enterprise, Toll Brothers is acutely susceptible to increases in interest rates. Thus, any knock-on effects on housing demand could potentially disconcert investors. However, Toll Brothers’ concentration on luxury buyers could bolster its demand and pricing power relative to its counterparts in the sector. Nonetheless, the continued strife with supply chain disruptions and soaring raw material costs could impact margins. Investors are advised to watch out for Toll Brothers’ forecast for home deliveries for the remaining year, particularly as the market anticipates a hiatus in the Federal Reserve’s rate hikes.

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Costco: A Glimpse into the Retail Industry’s Future

Turning to Costco, Zacks estimates its third-quarter EPS to be $3.32, and revenue to clock in at an impressive $54.57 billion. It’s noteworthy that both Target (TGT) and Walmart (WMT) – key competitors of Costco – witnessed a slump in their stocks following their latest financial disclosures. Target moderated its projections for the forthcoming quarter, attributing the move to “softening sales trends” and forecasting that retail shrinkage would impact profitability by more than $500 million compared to last year. It identified organised retail crime as a significant contributor to shrinkage. Costco’s membership-only business model could provide a buffer against similar shrinkage. Moreover, Costco’s monthly comparable sales report serves as a helpful indicator of sales performance. April’s figures were up by 1.4%, albeit alongside a drop in e-commerce. The question remains, will Costco outshine its competitors as consumers continue to tighten their purse strings?

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