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Costco On Thursday, the company missed Wall Street’s holiday-quarter sales expectations despite reporting year-over-year sales growth and strong e-commerce gains.
Shares of the retailer fell about 4% in aftermarket trading. The retailer’s shares hit a 52-week high earlier in the day.
Here’s what the retailer reported for its fiscal second quarter of 2024 compared to Wall Street’s expectations, based on an analyst survey from LSEG, formerly known as Refinitiv:
- Earnings per share: $3.92 vs. expected $3.62
- Revenue: $58.44 billion vs. expected $59.16 billion
For the three-month period ended Feb. 18, Costco’s net income rose to $1.74 billion, or $3.92 per share, compared with $1.47 billion, or $3.30 per share share in the previous year.
Costco’s revenue rose in the quarter from $55.27 billion in the year-ago period.
The company’s comparable sales increased 5.6% year-over-year and 4.3% in the U.S. Excluding changes in gas prices and foreign currencies, the metric rose 5.8% overall and 4.8% in the U.S.
Sales of grocery and sundries, a category that includes snacks and beverages, rose mid-single digits in the quarter, Chief Financial Officer Richard Galanti said on the company’s earnings call. Fresh foods increased in the high single digits and non-foods in the mid single digits.
Ancillary businesses, which include more service-related purchases such as travel, increased in the low single digits, he said. Costco’s food court, pharmacy and optical centers were the top performers in the quarter, and gasoline fell in the low single digits as the price per gallon fell.
More shoppers came to Costco and spent more on their shopping trips during the quarter. Traffic rose 5.3% globally and 4.3% in the U.S., Galanti said on the earnings call. The average ticket price has increased in the U.S. and worldwide, he said.
Inflation remained about the same this quarter compared to a year ago, allowing the retailer to lower prices on some items, Galanti said. For example, the price of reading glasses was reduced from $18.99 to $16.99 and the price of a 48 Kirkland Signature battery was reduced from $17.99 to $15.99. In the previous quarter, he said inflation was up to 1% year-on-year.
Galanti said many new items in categories such as sporting goods and lawn and garden will also have lower prices compared to last year due to declining freight and raw material costs.
Costco has 875 warehouses, including 603 in the United States and Puerto Rico. There are also clubs in about a dozen other countries, including Canada, Mexico, Japan and China.
In the second quarter, Costco opened four new clubs, including three in the U.S. and one in Shenzhen, China. This was the sixth club opening in China, Galanti said. Two of the three new US locations were Costco Business Centers, which specifically target small business owners such as restaurant operators.
As of Thursday’s close, Costco shares were up nearly 19% since the beginning of this year. The stock hit a 52-week high of $787.08 earlier in the day and closed at $785.59, pushing the company’s market value to nearly $350 billion.
Digital growth
Costco has made changes to its website to improve the experience for online shoppers, Galanti said Thursday. The company has also optimized its business to operate more digitally.
E-commerce sales increased 18.4% year-over-year in the quarter.
For example, Costco in February launched a new mobile app homepage that loads in less than two seconds, compared to eight seconds previously – a move it called crucial since about 60% of its e-commerce business comes through its mobile app be handled by mobile browser.
Last week, Apple Pay was rolled out to all online members. And it adds more goods to Costco Next, a seller platform that allows members to buy directly from some of the retailer’s suppliers at a discounted price. The marketplace offers a wide variety of items, including electronics, bicycles and clothing, he said.
E-commerce sales also have picked up as Costco has gotten better at highlighting the value of its online goods in recent months, particularly on big-ticket items like appliances, mattresses and tires, he said.
App downloads increased by 2.8 million in the quarter and currently stand at about 33 million, Galanti said.
Membership fees
Costco saw more member sign-ups as the company cracked down on membership sharing, Galanti said. He said the warehouse club noticed more people using their mother or father’s membership card during the pandemic and left it unnoticed. Then, he said, membership sharing increased as self-checkout became more common at clubs.
Now, he said, Costco requires more verification of membership cards to ensure they match the shopper.
“Will we get some new registrations from this? Absolutely,” he said. “In relation to the 60 or 70 million members, it’s not particularly meaningful, but it’s fairer and the right thing to do.”
However, he said, member sharing at Costco isn’t as big of a problem as it is at Netflix, another company that has cracked down. Compared to Netflix, he said, it’s harder for Costco members to share because they still need a person’s physical card to enter.
Investors have been waiting for Costco to increase its membership fees for more than a year. The company typically increased its annual fee about every five and a half years. The last fee increase took place in June 2017.
But Galanti said the company isn’t increasing the fee yet. However, he added: “It’s a matter of when, not if.”
The long-time CFO, who is retiring, has overseen all but one conference call since Costco went public in 1985. On Thursday’s conference call, he joked that the fee hike would be a task for his successor, Gary Millerchip, Kroger’s former CFO, to take over in mid-March.
“I joked with Gary, it will be under his supervision, not mine,” Galanti said.
This is breaking news. Please check back for updates.
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2024-03-07 23:24:05
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