Costco beats first-quarter earnings estimates with possible membership fee increases looming

Costco (COST) reported some consolidated earnings for its fiscal 2024 first-quarter results.

During the quarter, Costco reported adjusted earnings per share of $3.58, higher than Wall Street expectations of $3.41. Revenue was $57.8 billion, up 6% year over year, compared to expectations of $57.71 billion, according to Bloomberg data.

Same-store sales, excluding gas and foreign exchange, were lower than expected, dragged down by their performance in the United States. Total same-store sales jumped 3.8% in the fourth quarter, compared to 4.3% expected.

In the United States, same-store sales growth was 2.0%, compared to the expected 2.77%. Canada beat estimates with same-store sales growth of 6.4%, while international stores also posted a higher-than-expected increase of 11.2%.

Foot traffic is something the team has been “pleasantly surprised by,” CFO Richard Galanti said, based on the momentum gained during the pandemic.

“During the two years of Covid, we have benefited in many ways from more members and more volumes and not only have we retained them, but now we continue to add to those levels, so we feel very fortunate in that regard,” he said. On a call with investors.

He added that consumers are starting to return to purchasing discretionary goods as well, after a difficult year with rising interest rates and the return of student loan payments.

The wholesale giant declared a special cash dividend of $15 per share, for a total payout of $6.7 billion. This is the company’s fifth special distribution in 11 years, and will be distributed on January 12.

Costco shares are up 39% year to date, easily beating the S&P 500’s (^GSPC) gain of 23%.

See also  A looming workers' strike in Lunds and Peerless may affect holiday shopping

Cowen analyst Oliver Chen told Yahoo Finance Live that Costco is one of its top picks, calling its own Kirkland brand “pretty legendary.”

Meanwhile, Oppenheimer analyst Rupesh Parikh removed the retailer from his top pick rating “due to valuation following significant recent outperformance.”

Customers using the self-service checkout area at Costco, Queens, New York. (Lindsay Nicholson/UCG/Universal Image Group via Getty Images) (UCG via Getty Images)

Earnings Summary:

Here’s what Costco reported in its fiscal first quarter versus Wall Street estimates, according to Bloomberg data:

  • Net sales: $57.8 billion versus $57.71 billion expected

  • Adjusted earnings per share: $3.58 vs. $3.41 expected

  • Same store sales growth: 3.8% versus 4.30% expected

    • US same-store sales growth: 2.0% vs. 2.77% expected

    • Same store sales growth in Canada: 6.4% vs. 5.27% expected

    • – Other countries: 11.2% compared to the expected 9.24%

  • E-commerce sales growth: 6.30% versus 6.10% expected

During the quarter, the company sold over $100 million of 1-oz. Gold bullion, which sold for nearly $2,000 online to wholesale club members as consumers looked for alternative investments.

On the earnings call, Galanti shared more details about e-commerce. The company sold “e-gift cards for everything from restaurants to golf to airlines,” he said.

There’s even a treat for wealthy last-minute shoppers.

“For last-minute shoppers, a 1951 Mickey Mantle autographed rookie card in nearly mint condition is for sale online for $250,000,” Galanti said.

The Costco app was downloaded 2.75 million times during the quarter, and now has 30.5 million users, an increase of 10% year over year. Galanti said e-commerce is “very strong” and the team is in the middle of a two-year plan to boost their online presence.

See also  Is “Sharp Move” close to Bitcoin BTC price and ETH price ETH?

The results of these profits come as CEO Craig Jelinek is stepping down from leadership effective January 1, 2024. Ron Fatkris, who has served as chief operating officer and president since February 2022, will assume the top spot.

“At the end of the day, the reality is we stay the course,” said Galanti, who called the transition “pretty smooth” given that Vacres started at Price Club (which merged with Costco) when he was 17 years old. He has been with Costco for more than 40 years.

At the end of November, Costco lost one of its longtime board members, Charlie Munger. The famous investor was Berkshire Hathaway (BRK-A, BRK-B). He has served as director since 1997has long expressed his love for work.

“He was a legend to me. He was a tremendous asset to Costco,” Jelinek told Yahoo Finance.

Will Costco raise membership fees? Wall Street believes that will come soon.

Membership fees, a major source of income for the wholesale retailer, were $1.08 billion, below Wall Street estimates of $1.09 billion. In the fourth quarter of fiscal year 2023, the company generated $1.51 billion in membership fee revenue.

Although there is no sign of prices rising yet, it could happen soon.

The company raises prices every five years and seven months on average. Costco last raised membership fees in June 2017, but announced the change in March.

“We believe a membership fee increase will likely come next summer,” UBS analyst Michael Lasser wrote in a note to clients, noting that it did not happen in the previous fiscal year so as not to “increase pressure on his clients, whose budgets are already under pressure.” “By inflation.”

See also  United found loose bolts in the door seals of several 737 MAX 9 planes after an Alaska Airlines door exploded in mid-air.

Now that inflation is moderating, “Costco may be more likely to increase its membership fees.”

A Costco Gold Star membership costs $60 annually, while an Executive membership costs $120.

At the end of the first quarter, there were 72 million paid household members, up 7.6% from a year ago, and 129.5 million cardholders, up 7.1%.

In the fourth quarter, the company had 71 million paid family members and 127.9 million cardholders.

When asked on the call if the company would increase fees, Galanti acknowledged that the retailer “went a little longer than the average increase.” All the variables – strong renewal rates, strong new signups, strong loyalty – are poised to increase.

“I will use my fallback answer, my answer, it’s a question of when, not if,” Galanti concluded. “But at this point, we feel good about what we’re doing.”

Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Brooke De Palma Or email her at [email protected].

Click here for the latest stock market news and in-depth analysis, including stock-moving events

Read the latest financial and business news from Yahoo Finance

Leave a Reply

Your email address will not be published. Required fields are marked *