Costco (COST) reported significantly higher profits with its Q1 results for the 2024 fiscal year.
For the quarter, Costco reported adjusted earnings per share of $3.58, beating Wall Street's expectations of $3.41. Revenue was $57.8 billion, up 6% from a year ago, compared with expectations of $57.71 billion, according to Bloomberg data.
Same-store sales, excluding gasoline and foreign exchange, were lower than expected, hurt by U.S. performance. Total same-store sales rose 3.8% in the latest quarter, compared to expectations of 4.3%.
In the US, same-store sales growth was 2.0%, compared to expected 2.77%. Canada beat estimates with same-store sales growth of 6.4%, while international stores also reported a stronger-than-expected increase of 11.2%.
CFO Richard Galanti said the team was “pleasedly surprised” by the foot traffic and was building on the momentum gained during the pandemic.
“In the two years of COVID, we have benefited in many ways from more members and more volume, and not only have we maintained it, we are now continuing to build that level, so we feel very fortunate in that regard,” he said in the Conversation with investors.
He added that consumers have also returned to purchasing consumer goods after a difficult year of high interest rates and student loan repayments.
The wholesale giant announced a special dividend of $15 per share, with a total cash payment of $6.7 billion. This is the company's fifth special dividend in 11 years and will be paid on January 12th.
Costco shares are up 39% year-to-date, easily outpacing the S&P 500's (^GSPC) 23% gain.
Cowen analyst Oliver Chen told Yahoo Finance LIVE that Costco is among his top picks, calling its private label Kirkland “pretty legendary.”
While Oppenheimer analyst Rupesh Parikh removed the retailer from his top pick rating “based on valuation following significant recent outperformance.”
Customers using the self-service checkout area at Costco in Queens, New York. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images) (UCG via Getty Images)
The income overview:
According to Bloomberg data, Costco reported the following in its fiscal first quarter compared to Wall Street estimates:
The story goes on
Net sales: $57.8 billion versus expected $57.71 billion
Adjusted EPS: $3.58 vs. $3.41 expected
Same-store sales growth: 3.8% versus 4.30% expected
U.S. same-store sales growth: 2.0% vs. 2.77% expected
Same-store sales growth in Canada: 6.4% vs. expected 5.27%
Other International: 11.2% vs. 9.24% expected
E-commerce sales growth: 6.30% versus 6.10% expected
During the quarter, the company sold over $100 million in 1-ounce gold bars, which sold online for nearly $2,000 to wholesale club members, as consumers sought alternative investments.
On the earnings call, Galanti shared more details about e-commerce. He said the company sells “e-gift cards for everything from restaurants to golf to airlines.”
There's also a treat for well-heeled last-minute buyers.
“For the last minute buyers out there, there is a 1951 Mickey Mantle signed Ricky Card in near perfect condition for sale online for $250,000,” Galanti said.
Costco's app was downloaded 2.75 million times in the quarter and now has 30.5 million users, up 10% year-over-year. Galanti said e-commerce is “very strong” and the team is in the midst of a two-year plan to expand its online presence.
These earnings results come as CEO Craig Jelinek is stepping down from his position, effective January 1, 2024. Ron Vachris, who has served as COO and president since February 2022, will take the top spot.
“At the end of the day, the reality is that we're staying the course,” said Galanti, who called the transition “pretty seamless” since Vachris started at a Price Club (which merged with Costco) when he was 17. and has been with Costco for more than forty years.
In late November, Costco lost one of its longtime board members, Charlie Munger. The famous Berkshire Hathaway (BRK-A, BRK-B) investor has served as a director since 1997 and has long expressed his love for the company.
“He was a legend for me. A tremendous asset to Costco,” Jelinek told Yahoo Finance.
Will Costco increase membership fees? Wall Street believes it will happen soon.
Membership fees, a key source of revenue for the wholesaler, were $1.08 billion, less than Wall Street estimates of $1.09 billion. In the fourth quarter of fiscal 2023, the company generated membership fee revenue of $1.51 billion.
Although there has been no sign of a price increase yet, it could happen soon.
The company increases prices on average every five years and seven months. Costco last increased membership fees in June 2017, but announced the change in March.
“We assume that there will likely be an increase in membership fees next summer,” UBS analyst Michael Lasser wrote in a note to clients, pointing out that this did not happen in the previous fiscal year in order to “clients , whose budgets were already under pressure, “not to burden them even more.” through inflation.”
Now that inflation has eased, “Costco may be more likely to increase its membership fees.”
The Costco Gold Star membership costs $60 per year, while an executive membership costs $120.
At the end of the first quarter, there were 72 million paying household members, up 7.6% year over year, and 129.5 million cardholders, up 7.1%.
In the fourth quarter, the company had 71 million paying household members and 127.9 million cardholders.
When asked if the company would increase fees, Galanti acknowledged that the retailer has “held out a little longer than the average increase.” All the variables – high renewal rates, strong sign-ups, strong loyalty – are in place for a raise.
“I'm going to use my standby answer, my answer, it's a question of when, not if,” Galanti concluded. “But at this point we feel pretty good about what we’re doing.”
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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