UBS US hardline and broadline and food retail analyst Michael Lasser joins Market Domination hosts Josh Lipton and Julie Hyman to discuss how to play wholesale retailers with a focus on Costco (COST) and AutoZone (AZO).

The analyst says the “number one” thing he’s looking for out of Costco’s upcoming earnings report is “very healthy growth in the membership fee income. That is a critical driver of the company's profit and loss statement. It represents about 50% of its total income. So monitoring that metric is important.” He adds he will also be watching for “how its margins are performing. What we look at is a key metric called core. On core gross margin, which is an indicator of how profitability on a particular item is doing this year compared to the same period last year that had been going up in the more recent quarters. It's been going down a little bit as the company invests to try and continue to offer value to its consumers.”

Lasser says “Costco is, without question, taking market share. Costco is taking market share from the vast majority of the players in the market, you know, that includes conventional grocery stores, specialty retail stores, mall-based retailers.” He says consumers are attracted to “the value quality equation” and opportunities to consolidate trips and time spent in stores. “Costco is uniquely well positioned to benefit from both of those trends,” he says.”

After Costco’s recent fee hike, Lasser says earnings will offer a look into retention, which he expects to remain strong “even if it does ease off ever so slightly,” and “how is [the company] using this additional pool of profits that it's going to be able to accrue to increase the value proposition to its consumers.”

AutoZone recently reported its fourth quarter earnings results missing expectations, but the stock is still up double-digits year-to-date. Lasser says, “The reason why the stock is up like it is is because the market is gravitating to sustainable growth stories. If we're sitting here a year from now, there's a lot of uncertainty over the next 12 months. We could walk through those factors. But what the market is saying is that it has a higher degree of confidence that AutoZone will continue to grow its earnings in light of how it's positioned and in light of the market that it serves. More so than other retailers.”

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This post was written by Naomi Buchanan.