Costco’s (COST) fourth-quarter results beat estimates in both revenue and profit, as cheap gas prices likely won over inflation-weary consumers.
For its fiscal fourth quarter, Costco reported adjusted earnings per share of $4.86, above Wall Street expectations of $4.78. Revenue also rose to $78.94 billion, compared with expectations of $77.72 billion, according to Bloomberg data.
The company’s latest earnings, released Tuesday after the market closed, come as major headwinds such as higher gasoline prices, student loan repayments and higher interest rates, among others, are weighing on Americans’ wallets.
Same-store sales, including gasoline and foreign exchange, were slightly lower than expected – up 1.1% versus estimates of 1.87%. Excluding gasoline and foreign exchange, sales rose 3.8%, slightly below expectations of 3.92%.
“For the fourth quarter of 2023, we remind investors that Costco’s gas business will likely face a difficult year-over-year comparison in fuel margins,” Raymond James analysts wrote in a note ahead of the results. “As a reminder, national gas fuel margins (according to OPIS) saw a significant year-over-year increase during the summer months last year as oil prices declined (Costco’s national OPIS margins increased 60% year-over-year in F4Q22).”
Gasoline prices have skyrocketed over the summer compared to early 2023, making Costco’s cheap fuel attractive to customers. On Tuesday, the national average gas price was $3.84 per gallon at AAA, slightly below the 2023 peak.
As consumers flock to Costco for gas, they also tend to shop in-store.
Data from Placer.ai showed that year-over-year visits to Costco increased 3% in August, 4.5% in July and 3.6% in June. Meanwhile, total visits to wholesale clubs and superstores fell 1.9% in August and 0.4% in June and July.
“Disinflation continues in the food/others space… while gas price deflation (just -2%) is worth keeping an eye on – especially given the August increase,” Evercore ISI analyst Greg Melich wrote in a March 31 note. August. “A further increase in fuel prices could provide additional traffic, more competition and additional tailwinds to further emphasize the loyalty model.”
The story goes on
The income overview:
According to Bloomberg data, Costco reported the following in its fiscal fourth quarter compared to Wall Street estimates:
Net sales: $77.43 billion versus expected $77.6 billion
Adjusted EPS: $4.86 versus expected $4.78
Same-store sales growth: 1.1% versus 1.87% expected
E-commerce sales growth: -0.8% versus expected 5%
Stock growth: -7.01% vs. 7.31% expected
Costco shares fell 1.4% in after-hours trading Tuesday following the results. Shares are up 21% year-to-date.
What else we’re watching: Costco membership fees
Membership fees, a key source of revenue for the wholesaler, came in at $1.51 billion, above Wall Street’s expectations of $1.46 billion. In the third quarter, the company reported membership fee revenue of $1.04 billion.
While no plans have been announced to raise prices this quarter, investors will be watching closely to see if Costco announces plans to increase membership fees in the near future, as the company typically raises prices every five years and seven months on average.
Costco last raised membership prices in June 2017. A Costco Gold Star membership costs $60 per year, while an executive membership costs $120.
“We expected it [a membership fee increase] CFRA analyst Arun Sundaram told Yahoo Finance Live, adding that he expects the price to rise between $5 and $10. “They are really waiting for inflation to subside before they decide to raise fees.” But now we are starting to see moderate inflation. … I think an increase in membership fees could be announced by the end of this year.”
Last quarter, the company delayed raising fees. During the third-quarter earnings call, CFO Richard Galanti told UBS analyst Michael Lasser that Costco is “very good” in that it can increase membership fees “without impacting renewal rates or sign-ups or anything like that in any meaningful way.” .
“And at some point we will,” Galanti added. “But at the moment we feel we have enough leverage to get business going and we feel it is our duty to be a beacon to our members in helping them for the moment hold.”
An unsold 2023 Jeep Gladiator pickup truck sits in front of a Costco warehouse in Sheridan, Colorado, on Wednesday, September 13, 2023. (David Zalubowski/AP Photo)
What Wall Street is saying ahead of the results:
“Costco’s value proposition continues to shine as core U.S. comps increased to +4.5% in July…led by the best traffic growth since July 2022. Sequential acceleration was driven by fresh foods, as well as grocery and sundries and non-food performance was stable.
“Another positive takeaway from the month was e-commerce returning to year-ago growth after nine months of declines, representing a 760 basis point sequential improvement in 2-year growth and likely pointing to healthier big-ticket trends. Macroeconomic uncertainties remain, but COST is one of them. “We are one of the most consistent operators in our coverage and should continue to be a market share winner given its value proposition.” -Krisztina Katai, Deutsche Bank
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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