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Costco On Thursday, it missed Wall Street's revenue expectations for the holiday quarter, despite reporting year-over-year sales growth and strong e-commerce gains.
The retailer's shares fell about 4% in aftermarket trading. The retailer's stock had reached a 52-week high earlier in the day.
Here's what the retailer reported for its fiscal second quarter of 2024 compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG, formerly known as Refinitiv:
EPS: $3.92 vs. $3.62 expected Revenue: $58.44 billion vs. $59.16 billion expected
In the three-month period ended February 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, a year earlier.
Costco's revenue for the quarter was up from $55.27 billion in the same period last year.
The company's comparable sales were up 5.6% year over year and 4.3% in the US. Excluding changes in gas prices and foreign currencies, the measure rose 5.8% overall and 4.8% in the United States.
Food and miscellaneous sales, the category that includes snack foods and beverages, rose by a moderate percentage in the quarter, CFO Richard Galanti said on the company's earnings call. Fresh foods rose in the high single digits while non-food items rose in the mid single digits.
Ancillary comps, which include more service-related purchases such as travel, were up in the low single digits, he said. Costco's food court, pharmacy and optical centers were the best performers in the quarter and gas fell by single digits as the price per gallon fell.
More shoppers came to Costco and spent more on their shopping trips during the quarter. Traffic increased 5.3% worldwide and 4.3% in the United States, Galanti said on the earnings call. Average tickets have risen in the United States and around the world, he said.
Inflation was roughly flat year-over-year in the quarter, which allowed the retailer to lower prices on some items, Galanti said. For example, he said it was able to lower the price of reading glasses from $18.99 to $16.99 and lower the price of 48 Kirkland Signature batteries from $17.99 to $15.99. In the previous quarter, he said inflation reached 1% year-on-year.
Many new items in categories like sporting goods and lawn and garden will also have lower prices compared to last year due to lower shipping and merchandise costs, Galanti said.
Costco has 875 warehouses, including 603 in the United States and Puerto Rico. It also has 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 United States and one in Shenzhen, China. Galanti said this marks the sixth club to be opened in China. Two of the three new U.S. locations are Costco Business Centers, which specifically target small business owners such as restaurant operators.
As of Thursday's close, Costco shares were up nearly 19% year-to-date. The stock hit a 52-week high of $787.08 earlier in the day and closed at $785.59, pushing the company's market cap to nearly $350 billion.
Digital growth
Costco has made changes to its website to improve online shoppers' experience, Galanti said Thursday. It has also adjusted its business to be more digitally savvy.
E-commerce sales grew 18.4% in the quarter compared to the previous year.
For example, Costco rolled out a new mobile app homepage in February, which loads in less than two seconds compared to eight seconds previously — a move it said was crucial given that about 60% of its e-commerce business is done through its mobile phone. App and mobile browser.
Apple Pay rolled out last week to all online members. It adds more merchandise to Costco Next, a seller platform that allows members to buy directly from certain retailers' suppliers at a discounted price. He added that the market carries a wide range of goods, including electronics, bicycles and clothing.
E-commerce sales have also gained momentum as Costco has gotten better in recent months at promoting the value of its merchandise online, especially for big-ticket items like appliances, mattresses and tires, he said.
App downloads rose by 2.8 million in the quarter and currently total about 33 million, Galanti said.
Membership fees
Costco has seen more membership sign-ups as the company has cracked down on membership sharing, Galanti said. He said the Warehouse Club noticed during the pandemic that more people were using their mom or dad's membership card and letting it slide. Membership participation then increased because self-checkout became more common at clubs, he said.
Costco now requires more verification of membership cards to ensure they match the shopper, he said.
“Are we getting some new subscriptions from it? Sure,” he said. “Compared to 60 or 70 million members, this doesn't make a lot of sense, but it is fairer and the right thing to do.”
However, he said member engagement at Costco has not been as big an issue as Netflix, another company that has cracked down. Compared to Netflix, it was harder for Costco members to participate because they still needed to have the person's physical card when they entered, he said.
Investors have been waiting for Costco to raise its membership fees for more than a year. The company typically increases its annual fees about every five and a half years. The last time fees were raised was in June 2017.
But Galanti said the company has not yet raised fees. Although he added: “It's when, not if.”
The longtime CFO, who is retiring, has hosted all but one earnings call since Costco went public in 1985. He joked on Thursday's call that raising fees would be important to his successor, Gary Millership, the former Kroger CFO, after he took over. . He takes office in mid-March.
“I was joking with Gary, it would be under his watch, not mine,” Galanti said.
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