Costco Surpasses Earnings Expectations Despite Soft Sales

Costco Stock

Costco (NASDAQ:COST), the popular membership club, has exceeded Wall Street’s earnings forecasts in its recent quarterly report, showcasing resilience amid challenges in its sales performance. While comparable sales for the company increased by 1.1% year over year, there was a more modest growth of 0.2% in the United States. The company experienced robust grocery sales but witnessed weaker trends in discretionary items.

Richard Galanti, Chief Financial Officer, noted that shoppers made more frequent visits to Costco stores, even though their spending decreased. Weaker sales in non-food, higher-priced items in the U.S., along with falling gas prices, impacted overall revenue.

The global and U.S. statistics show a 5.2% and 5% increase in foot traffic year over year, respectively. However, Costco’s average transaction amount declined by nearly 4% worldwide and 4.5% in the U.S. during the quarter.

Here’s a summary of Costco’s performance for the quarter ending September 3, compared to analysts’ expectations:

Earnings per share: $4.86 vs. expected $4.79

Revenue: $78.9 billion vs. expected $77.9 billion

Costco’s net income for the fiscal fourth quarter reached $2.2 billion, or $4.86 per share, up from $1.87 billion, or $4.20 per share, in the previous year.

Although Costco reported positive growth, its sales have been mainly influenced by groceries. The company has benefited from Americans cooking more at home, millennials moving into homes with larger pantries, and inflation driving customers to sign up for memberships with warehouse clubs like Costco, Sam’s Club, and BJ’s Wholesale Club.

The membership trend remained favorable, with Costco ending the quarter having gained 71 million paid household members, an increase of nearly 8% from the previous year. The company also saw an increase in higher-tier members opting for Executive Memberships, which contribute significantly to its global sales.

However, Costco, like many retailers, experienced a trend of reduced spending on big-ticket and discretionary items. This has particularly affected Costco’s digital sales, which declined by 0.8% compared to the previous year.

Despite the overall decline in digital sales, certain discretionary items, such as appliances and one-ounce gold bars, saw a significant increase in demand on the company’s website.

Costco’s strategy to encourage customers to explore more items outside of the grocery department included adding smaller, impulse-driven snacks to their offerings. Additionally, the retailer introduced popular gaming systems and began selling Christmas items early, which proved successful.

While sales trends have slowed in Costco’s largest market, the U.S., the company remains optimistic. It plans to open 10 new stores in the next three months, including nine in the U.S. and one in Canada.

Investors have been anticipating a membership fee increase, which hasn’t occurred since June 2017. Although a fee hike is on the horizon, Galanti did not specify when it might take effect.

Despite recent challenges, Costco’s stock has outperformed the S&P 500, with a 21% increase in share price in the current year compared to the S&P’s 11% gains. On Tuesday, Costco’s stock closed at $552.96, showing a slight decrease of approximately 1%.

In summary, Costco continues to navigate changing consumer spending patterns and maintain strong membership growth despite fluctuations in sales performance.

Featured Image: Megapixl

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About the author: Stephanie Bédard-Châteauneuf has over seven years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, market news, and personal finance. She has an MBA in finance.