Costco U.S. stocks on Thursday beat Wall Street's quarterly earnings and sales estimates, as e-commerce sales jumped and shoppers bought jewelry, luggage and furniture.
On the membership-based warehouse club's earnings call, CFO Gary Millership said customers have remained selective in their purchases. But he added that they have shown they are willing to spend, especially with low inflation, if they see a “combination of novelty of items, quality and value.”
Costco's strong sales of meat and produce indicate shoppers are eating out less and cooking at home more, he said.
He added that the retailer has seen a “divide with members,” with some still spending on “high-quality premium cuts” and others “gravitating toward those items with a lower price per pound across categories like poultry and cuts.” Of beef and pork as well.”
Here's how the warehouse club performed in the fiscal first quarter compared to what Wall Street expected, according to a survey of analysts conducted by LSEG:
EPS: $4.04 vs. $3.79 expected Revenue: $62.15 billion vs. $62.08 billion expected
In the three-month period ended Nov. 24, Costco's net income rose to $1.80 billion, or $4.04 per share, from $1.59 billion, or $3.58 per share, in the same period last year. Revenues increased from $57.80 billion in the same period last year.
Costco has benefited from its reputation for selling bulk goods at better value, as American households feel the cumulative impact of rising food and housing prices. The membership-based club also raised its annual membership fees for the first time in about seven years. The quarterly results are the first reported by Costco since the fee increase took effect in September.
Costco's membership fee revenue was $1.17 billion, compared to Wall Street expectations of $1.16 billion. It jumped nearly 8% year-on-year, excluding the impact of foreign exchange rates.
But on the company's earnings call, Millership said the membership fee increase has not had a significant impact so far due to deferred accounting. It represents less than 1% of fee growth this quarter, he said.
The company's comparable sales increased 5.2% year over year. In the US, comparable sales were up 5.2% as well.
Customers visited Costco stores and its website more during the quarter. Traffic was up 5.1% globally and 4.9% in the US. The company's average ticket rose 0.1% globally and 0.3% in the US, including the negative impact of gas deflation and foreign exchange rates. If adjusted to exclude those factors, the average ticket would have risen 2% worldwide and 2.3% in the US.
Gold, jewelry, gift cards, home furnishings, sporting goods, health and beauty aids, luggage kiosks and hardware were all up by double digits year over year, Millership said.
In Costco's new category, which includes produce-like items, sales rose by high single digits this quarter, Millership said. He said meat sales rose by double digits, as some members continued to purchase higher-priced cuts and purchased other lower-cost options.
Costco's own brand, Kirkland Signature, is growing faster than the overall business, Millership said. He added that Costco has been able to lower prices on some items, such as Kirkland organic peanut butter, chicken broth, and sauvignon blanc.
Club dining halls, optical departments and travel services, such as car rentals and cruise reservations, also performed well in the quarter, but gas sales fell by low double digits as per-gallon prices declined, he said.
E-commerce sales rose 13% in the quarter compared to the same period last year. The company is gaining market share by shipping large and bulky items, and it reached nearly 1 million deliveries this quarter, a new record, CEO Ron Vacres said on the company's earnings call.
Online traffic, conversions and average order value all increased year-over-year, Millership said.
Membership renewal rates were 90.4% worldwide, down ten percent, Millership said on the company's call. Renewal rates have dropped slightly as it attracts more new members through digital channels, he said. These subscriptions tend to renew a little less frequently, he said.
It ended the quarter with 77.4 million household members receiving wages, an increase of approximately 8% year over year, or 138.8 million cardholders.
Costco also set new records in its U.S. bakery division by selling 4.2 million pies in the three days before Thanksgiving and selling 274,000 whole pizzas in its food courts across the country on Halloween, Vacheris said on the call.
Costco opened seven new clubs this quarter and plans to open 29 clubs during the fiscal year, including three relocations, Vacris said. Ten of these clubs will be outside the United States. The company owns nearly 900 clubs, including 617 in the United States and Puerto Rico.
As of Thursday's close, Costco shares were up nearly 50% so far this year, outpacing the S&P 500's gain of 27% over the same period. Shares closed at $988.39 on Thursday.
