After a string of warnings from consumer discretionary companies and big-box retailers in recent weeks, all eyes are on discount warehouse chain Costco (COST:NASDAQ) when it reports third-quarter sales and earnings on 29 March.

In the second quarter, which took in the 12 weeks to 16 February, the company posted total revenue of $62.5 billion up 9.1% on the previous year, with sales in the US up 8.6%, sales in Canada up 10.5% and online sales up 22%.

However, consumer confidence has fallen since February while inflation expectations have risen, and even lower-income households have been struggling according to other discount retailers.

Moreover, since February, President Trump has ramped up his rhetoric against Canada, where Costco has 109 of its roughly 900 stores, so investors need to brace themselves for some collateral damage to sales.

On the flip side, Costco imports around a third of the products it sells and of that figure around half come from Canada, China and Mexico, so at the same time there will be a focus on tariffs and their impact on sales and earnings.

There is no question Costco has been an exceptional investment over the last five years, with its shares rising from around $200 to more than $1,000 earlier this year, and although there has been some profit-taking of late the shares still trade on 47 times 12-month forward earnings.

What that means is the stock is priced for perfection, so if there is any bad news either in the third-quarter results or in the outlook we would not be surprised to see the shares punished by the market. 

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