Costco Exceeds Earnings Forecasts as E-Commerce Sales Surge
Costco Wholesale Corporation delivered impressive quarterly results, surpassing Wall Street’s expectations for earnings and revenue. The membership-based warehouse giant benefited from strong e-commerce growth and robust demand for products like jewelry, luggage, and furniture, highlighting its ability to meet evolving consumer preferences.
During the earnings call, Chief Financial Officer Gary Millerchip shared insights into customer behavior, emphasizing that while shoppers remain selective, they are willing to spend when products offer a compelling combination of innovation, quality, and value. This shift, coupled with inflation easing, has boosted consumer confidence in Costco’s offerings.
Millerchip also noted a trend of customers dining out less and cooking at home more, as reflected in strong sales of fresh categories like meat and produce.
Key Highlights of Costco’s Fiscal First Quarter
- Earnings Per Share: $4.04 (beating the $3.79 expected).
- Revenue: $62.15 billion (exceeding the $62.08 billion forecast).
- Net Income: Increased to $1.80 billion, or $4.04 per share, up from $1.59 billion, or $3.58 per share, in the same quarter last year.
- Revenue Growth: Up from $57.80 billion in the year-ago period.
Costco’s reputation for offering bulk items at competitive prices continues to resonate with U.S. households grappling with the lingering effects of higher food and housing costs. This quarter marked the first set of results following Costco’s membership fee increase, its first in seven years.
Membership Growth and Retention
Costco’s membership fee revenue rose by almost 8% year over year (excluding foreign exchange impacts), reaching $1.17 billion, slightly above analysts’ expectations. However, the immediate financial impact of the fee hike was minimal due to deferred accounting.
Membership renewal rates stood at 90.4% globally, slightly down by 0.1%. Millerchip attributed this to the growing number of new digital signups, which historically have a slightly lower renewal rate. By the quarter’s end, Costco had 77.4 million paid household members, marking an 8% year-over-year increase, alongside 138.8 million total cardholders.
Strong Comparable Sales and Increased Foot Traffic
Costco’s comparable sales grew by 5.2% globally and in the U.S., reflecting continued consumer engagement. Traffic increased by 5.1% globally and 4.9% domestically. Despite challenges such as gas price deflation and foreign exchange rates, the company’s average ticket size was up 0.1% globally and 0.3% in the U.S. Adjusted for these factors, ticket sizes rose 2% and 2.3% respectively.
Key product categories showing double-digit growth included gold and jewelry, gift cards, home furnishings, health and beauty aids, sporting goods, luggage, and hardware. Fresh food sales, particularly meat, saw strong growth, with customers purchasing both premium cuts and lower-cost options depending on their budgets.
Costco’s private-label brand, Kirkland Signature, outperformed the company’s overall growth, and the retailer reduced prices on popular items such as organic peanut butter, chicken stock, and Sauvignon Blanc.
E-Commerce: A Key Growth Driver
Costco’s e-commerce sales soared by 13% year over year, driven by increased online traffic, higher conversion rates, and larger average order values. The company set a record with nearly 1 million deliveries of large and bulky items during the quarter, showcasing its ability to cater to diverse customer needs.
CEO Ron Vachris noted that Costco continues to gain market share in the e-commerce space, further solidifying its position in the competitive retail landscape.
Additional Milestones and New Store Openings
Costco achieved notable records in its U.S. bakery division, selling 4.2 million pies during the three days leading up to Thanksgiving and 274,000 pizzas on Halloween through its food courts.
The company opened seven new warehouse locations during the quarter and plans to open 29 new clubs (including three relocations) during the fiscal year. Of these, 10 will be international locations. Costco now operates nearly 900 clubs globally, with 617 in the U.S. and Puerto Rico.
Stock Performance
As of Thursday’s market close, Costco shares have surged nearly 50% year-to-date, far outpacing the S&P 500’s 27% gain during the same period. The company’s stock closed at $988.39, reflecting investors’ confidence in its ability to navigate a challenging economic environment while delivering strong results.
