Costco tops quarterly earnings expectations, even as sales remain soft

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Costco on Tuesday reported quarterly earnings that topped Wall Street’s expectations, as shoppers turned to the membership club for groceries but bought fewer big-ticket items.

On an earnings call, Chief Financial Officer Richard Galanti said shoppers made more trips to the retailer’s stores, even as they spent less. He said sales of pricier items in the U.S., outside of food, were weaker and falling gas prices also weighed on revenue.

Traffic rose 5.2% worldwide and 5% in the U.S. on a year-over-year basis. Costco’s average transaction amount in the quarter dropped nearly 4% worldwide and 4.5% in the U.S., he said.

Here’s what the membership-based warehouse club reported for the three-month period that ended Sept. 3 compared with what analyst were expecting, according to consensus estimates from LSEG, formerly known as Refinitiv:

  • Earnings per share: $4.86 vs. $4.79 expected
  • Revenue: $78.9 billion vs. $77.9 billion expected

Costco’s net income for the fiscal fourth-quarter rose to $2.2 billion, or $4.86 per share, compared with $1.87 billion or $4.20 per share a year earlier.

Comparable sales for the company rose 1.1% year over year, but only 0.2% in the U.S. The metric, excluding changes in gas prices rose by 3.8% globally and 3.1% in America. Inflation has also driven some shoppers to sign up and renew their memberships to clubs, including

Walmart-owned Sam’s Club and BJ’s Wholesale Club.Those favorable membership trends continued in the quarter. Costco had 71 million household members at the end of the quarter, an increase of nearly 8% over a year earlier. That growth outpaced its rate of new store openings, which grew by slightly under 3% over the past year.

Yet in recent quarters, even Costco has spoken about consumers pulling back on some big-ticket and discretionary items, as grocery bills and housing costs remain elevated.

That has weighed in particular on Costco’s digital sales. E-commerce sales fell 0.8% from the previous year. Appliance sales rose by more than 30% in the third quarter of this year. And, he added, the company has had trouble keeping a new offering in stock: One ounce gold bars.

“When we load them on the site, they’re typically gone within a few hours and we limit two per member,” Galanti said. Costco echoed a trend seen by other retailers, including

Walmart

and

Target: Groceries are the category driving sales.Costco has also tried new approaches to get customers to toss more items in the basket when they’re shopping aisles outside of the grocery department, Galanti said.It added small-ticket items, such as cheaper, impulse-driven snacks. It has also kept its merchandise fresh by stocking popular gaming systems, and launching Christmas items early. In the U.S. – Costco’s largest market – sales have been slowing. Costco has nearly 600 clubs in the U.S., and Puerto Rico. In the past two quarters, comparable sales — an industry metric that takes out the effect of store openings and closures — were roughly flat in the U.S. from the prior-year periods.Investors have long anticipated a membership fee hike for Costco that hasn’t yet come.

Its last bump came in June 2017, and based on its typical cadence, it had been due for an increase in early 2023. These fees are the main source of Costco revenue. He declined to say when this might be. Costco shares have gained about 21% this year compared to the S&P500’s 11% gain. Stocks of the company closed Tuesday at $552.96 – down about 1%.