Costco earnings: Revenue misses, stock slips
'Quality and value have never been more important,' Costco's CFO said on the earnings call.
Costco (COST) reported mixed fiscal fourth quarter results on Thursday after the market close.
Earnings per share for the wholesale giant beat estimates, coming in at $5.29, compared to Bloomberg consensus estimates of $5.07. But the company posted a slight miss on revenue, with $79.7 billion, compared to expectations of $79.96 billion.
"It's very clear that quality and value have never been more important," CFO Gary Millerchip told investors on an earnings call. "As you look at our trends in the year to date, we have seen that as inflation has dissipated, our members have started to spend more on nonfood items, which is really encouraging in our mind."
Costco's same-store sales came in higher than expected at 6.9%, compared to estimates for a 6.4% increase, while e-commerce sales jumped 19.5%, slightly lower than the 19.63% increase Wall Street was hoping for. These increases were led by sales growth in appliances, health and beauty aids, tires, toys, and gift cards, among other items.
Nonfood items saw high comparable sales in Q4 as consumers slowly shifted from focusing solely on necessities and grocery spending. Gold and jewelry, gift cards, toys, home furnishings, and tires, among other items, were up double digits in the quarter.
Costco stock fell 1% during after-hours trading following the report. Year to date, shares are up nearly 40% versus a 20% gain for the S&P 500 (^GSPC).
There was a lot of optimism heading into this report, with 26 Buy ratings on the Street, 18 Holds, and one Sell.
Prior to the release, UBS analyst Michael Lasser wrote that the company is "clearly gaining market share" with consistent traffic growth and a "faster recovery in general merchandise" sales than its competition.
In August, Costco's foot traffic jumped 10.5%, per data analytics firm Placer.ai, as the company competed on value with big box retailers and its closest peers, Sam's Club (WMT) and BJ's (BJ). Overall, the superstores and wholesale club sector saw a 4.9% increase in foot traffic.
Millerchip said value is "resonating" with members with lower prices for fresh items like its private-label brand chicken tenders.
"We lowered the price 13% and saw a 21% lift in pounds sold," Millerchip said. In addition, Costco also lowered prices on other items like foil, macadamia nuts, and olive oil, among other times.
CEO Ron Vachris added that penetration for its private label Kirkland Signature brand continues to grow, saying that it adds to the "value proposition" for members and builds loyalty.
But it's not too focused on others, Millerchip said. "We're our own biggest competitor."
UBS analyst Michael Lasser said lower prices could be happening ahead of the expected benefit of increased membership fee revenue, following the increase that went into effect earlier this month.
On Sept. 1, Costco hiked the price of its Gold Star membership by $5 to $65, while it increased the Executive membership by $10 to $130.
It was the first time the company hiked its membership fees since 2017, and Costco had delayed the increase until the team felt like it "started to see inflation dissipate and consumers were spending more."
Read more: How to save on travel with a Costco credit card
The change is expected to impact around 52 million memberships, a little over half of which are Executive memberships. The fee hike is expected to grow membership income by high-single to low-double digits.
Membership fee income for the quarter came in slightly below Wall Street's expectations at $1.51 billion, compared to the $1.54 billion that the Street expected. The price hike will be reflected in next quarter's results.
The company said at the end of Q4, US and Canada renewal rates stood at 92.9%, down 0.1% from the end of Q3. Half of its new member sign-ups in fiscal year 2024 were under 40 years old, while Executive members now make up 46.5% of paid members.
This quarter, the company also doubled down on scanning membership cards at the door, which Vachris said allowed operators to know real-time foot traffic and prompted customers to renew memberships.
Costco currently operates 891 warehouses worldwide.
The earnings rundown:
Here's what Costco reported for its Q4 earnings report, which ended Sept. 1, 2024, versus Bloomberg consensus estimates.
Revenue: $79.70 billion versus $79.96 billion
Adjusted earnings per share: $5.29 versus $5.07
Total company comparable sales growth, excluding fuel: 6.9% versus 6.40%
US same-store sales growth: 6.30% versus 5.96%
Canada same-store sales growth: 7.90% versus 7.35%
Other international sales growth: 9.30% versus 8.62%
E-commerce growth: 19.5% versus 19.63%
Membership fee revenue: $1.51 billion versus $1.54 billion
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Correction: A previous version of this article misstated the number of Costco store locations. We regret the error.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.