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Costco on Thursday 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 shares had hit a 52-week high earlier in the day.
Here’s what the retailer reported for the fiscal second quarter of 2024 compared to what Wall Street expected, based on a survey by analysts at LSEG, formerly known as Refinitiv:
- Earnings per share: $3.92 versus $3.62 expected
- Revenue: $58.44 billion versus $59.16 billion expected
In the three-month period ended Feb. 18, Costco’s net income rose to $1.74 billion, or $3.92 per share, up from $1.47 billion, or $3.30 per share , from the previous year.
Costco’s revenue for the quarter increased from $55.27 billion in the same period a year ago.
Comparable sales for the company increased 5.6% year-over-year and 4.3% in the U.S. Excluding changes in gas prices and foreign currency, the metric increased 5.8% overall and 4.8% in the United States
More shoppers came to Costco and spent more on their purchases during the quarter. Traffic increased 5.3% worldwide and 4.3% in the United States, Chief Financial Officer Richard Galanti said during the company’s earnings call. The average ticket has increased in the United States and around the world, he said.
Inflation remained essentially stable year over year in the quarter, which allowed the retailer to reduce prices on some items, Galanti said. For example, he said, he was able to reduce the price of reading glasses from $18.99 to $16.99 and the price of 48 Kirkland Signature batteries from $17.99 to $15.99. In the previous quarter, he said inflation was 1% year-on-year.
Galanti said many new items in categories such as sporting goods and lawn and garden items will also have lower prices than a year ago due to declining transportation and raw material costs.
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. It is the sixth club to open in China, Galanti said. Two of the three new locations in the United States were Costco Business Centers, specifically aimed at small business owners such as restaurant operators.
As of Thursday’s close, Costco shares were up nearly 19% since the start of the year. The stock hit a 52-week high of $787.08 earlier in the day and closed at $785.59, bringing the company’s market value to nearly $350 billion.
Digital growth
Costco has made changes to its website to improve the experience of online shoppers, Galanti said Thursday. He has also optimized his business to be more digitally savvy.
E-commerce sales grew 18.4% in the quarter compared to the prior year.
For example, Costco launched a new mobile app home page in February that loads in less than two seconds compared to eight seconds previously — a move it said was crucial since about 60% of its grocery business e-commerce occurs via its mobile app and mobile browser.
Apple Pay launched for all online members last week. And it’s adding more merchandise to Costco Next, a sales platform that allows members to buy directly from some of the retailer’s suppliers at a discounted price. The market offers a wide variety of items, including electronics, bicycles and clothing, he said.
E-commerce sales also have gained momentum as Costco has gotten better in recent months at advertising the value of its merchandise online, particularly for big-ticket items such as appliances, mattresses and tires, he said.
App downloads increased by 2.8 million in the quarter and currently stand at about 33 million, Galanti said.
Membership fees
Costco has seen more subscription signups as the company has cracked down on subscription sharing, Galanti said. During the pandemic, she said the warehouse club noticed more people using Mom or Dad’s membership card and let it slide. Then, she said, membership sharing grew because self-checkout became more common at clubs.
Now, he said, Costco requires more scrutiny of membership cards to make sure they match the shopper.
“Will there be new signups? Absolutely,” he said. “Compared to 60 or 70 million members it doesn’t mean much, but it’s more fair and the right thing to do.”
However, he said member sharing at Costco wasn’t as big of a problem as Netflix, another company he cracked down on. Compared to Netflix, he said, it was harder for Costco members to share because they still needed to have a person’s physical card when they entered.
Investors have been waiting more than a year for Costco to raise membership fees. The company typically increases its annual fee approximately every five and a half years. The last time it raised rates was in June 2017.
But Galanti said the company has no plans to increase the rate yet. 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 commissions will be a task for his successor, Gary Millerchip, the former Kroger CFO, after he takes over in mid-March.
“I’m joking with Gary, it will be under his control, not mine,” Galanti said.
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