Costco Wholesale Corp (COST) Q4 2024 Earnings Call Transcript Highlights: Strong E-commerce ...
Net Income: $2.354 billion, or $5.29 per diluted share, up from $2.16 billion and $4.86 per diluted share last year.
Net Sales: $78.2 billion, an increase of 1% from $77.4 billion last year.
Comparable Sales: US up 5.3%, Canada up 5.5%, International up 5.7%, Total company up 5.4%.
E-commerce Sales: Up 18.9%, or 19.5% adjusted for FX.
Membership Fee Income: $1.512 billion, up 0.2% year over year.
Renewal Rates: US and Canada at 92.9%, Worldwide at 90.5%.
Gross Margin: 11%, up 40 basis points year over year.
SG&A Rate: 9.04%, up 8 basis points year over year.
Interest Expense: $49 million, down from $56 million last year.
Interest Income: $138 million, down from $201 million last year.
Tax Rate: 24.4%, down from 27.1% last year.
New Warehouses: 14 new warehouses opened in Q4.
Capital Expenditure: $1.58 billion in Q4, total year spend $4.71 billion.
Paid Household Members: 76.2 million, up 7.3% year over year.
Executive Memberships: 35.4 million, up 9.6% year over year.
Release Date: September 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Costco Wholesale Corp (NASDAQ:COST) reported a 9% year-over-year increase in net income for the fourth quarter of fiscal 2024.
The company opened 30 new warehouses in fiscal 2024, including its first-ever building in Maine and its 600th US building in Eau Claire, Wisconsin.
E-commerce comparable sales were up 18.9%, with significant growth in appliances, furniture, and big and bulky items.
Membership fee income increased by 7.4% year-over-year, excluding the impacts from the extra week last year and foreign exchange.
Costco Wholesale Corp (NASDAQ:COST) saw a 6.4% increase in worldwide traffic or shopping frequency, indicating strong customer engagement.
Negative Points
The average transaction or ticket was negative 0.9% worldwide, reflecting headwinds from gas deflation and foreign exchange.
Higher wages in the US and Canada were a headwind for the quarter, impacting the SG&A rate.
Interest income for the quarter was $138 million, down from $201 million last year, primarily due to a special dividend paid in January 2024.
Foreign exchange and other factors resulted in an $18 million loss this year compared to a $37 million gain last year.
The US and Canada renewal rate slightly decreased to 92.9%, impacted by lower renewal rates from a digital promotion cohort.
Q & A Highlights
Costco Wholesale Corp (NASDAQ:COST) Q4 2024 Earnings Call Highlights
Q: On the previous earnings call, there was a discussion about the possibility of greater SG&A leverage in the future. How should we reconcile this potential posture of driving more leverage but also adopting the same prior approach of putting upside back into wages? A: Gary Millerchip, CFO: Our focus is on achieving a balance across the business. We continue to invest in members, lower prices, and invest in our employees. We believe this is critical for driving top-line sales growth. Despite wage increases, we offset these costs by driving productivity and sales leverage. We aim to sustainably drive top-line and profitable growth.
Q: Can you speak to the impact of the card readers at the different stores you rolled out so far? Should we be modeling potentially a lift in member counts or growth in addition to the MFI bump from the fee increase as well? A: Roland Vachris, CEO: The card readers provide real-time traffic counts, improve front-end productivity, and help manage membership verification. This has led to improved productivity and member experience, with some lift in member sign-ups and renewals.
Q: Can you talk about the risk around the port strike that's emerging here? What percentage of the product comes through those affected ports? A: Roland Vachris, CEO: We import primarily non-foods, which is about 25% of our total business. We've taken preemptive measures like pre-shipping holiday goods and looking at alternate plans to mitigate the impact. The situation is being closely monitored.
Q: Can you talk a little bit about the sequential change in the other business line within the margin build, particularly e-commerce and gas margins? A: Gary Millerchip, CFO: E-commerce and gas were the two biggest factors in the margin improvement. E-commerce has shown strong sales growth and improved fulfillment efficiency. Gas margins benefited from moderate tailwinds and lapping a weaker quarter last year.
Q: Anything you can share on why the US would step down from 24 levels in new store growth? Should we think about international as being a more important growth vertical for you? A: Roland Vachris, CEO: The timing of new openings is based on various factors like infrastructure and utilities. We see balanced growth opportunities both domestically and internationally. We have several new markets lined up for expansion.
Q: What has been the customer response to the MFI increase? Do you expect to see a rise in customer attrition? A: Gary Millerchip, CFO: We haven't seen a significant member reaction. Membership renewal rates remain stable. Our efforts to stave off inflation and deliver value to members have been recognized, and we continue to invest in member experience.
Q: How do you feel about the health of your consumer? Any changes in consumer behavior of note during the quarter? A: Gary Millerchip, CFO: Quality and value are more important than ever. We've seen members spending more on non-food items as inflation dissipates. There's a shift from food away from home to food at home, with strong growth in fresh foods and ethnic food categories.
Q: Can you give us a broad update on e-commerce penetration, profitability, and how it is impacting margins? A: Gary Millerchip, CFO: E-commerce penetration is in the high single-digit range. Including digitally started sales like Instacart, it would be in the double digits. E-commerce is less profitable than traditional shopping but is improving due to sales growth and fulfillment efficiency.
Q: Can you talk about competitive pricing, particularly in grocery? How are your price gaps? A: Gary Millerchip, CFO: We focus on being the first to lower prices and the last to raise them. The promotional environment has increased, especially in appliances and consumer electronics. We feel good about our position and continue to proactively provide the best value for our members.
Q: Given the recent wage increase, what are your average wages now in the US or globally? A: Roland Vachris, CEO: The average wage is just north of $30 an hour in the US and Canada.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.