Costco beat Wall Street's quarterly profit and revenue estimates on Thursday as e-commerce sales surged and shoppers snapped up jewelry, luggage and furniture.
On the membership-based warehouse club's earnings call, Chief Financial Officer Gary Millerchip said customers remained picky about their purchases. But, he added, they have shown they are willing to spend money, especially if inflation falls, when they see a “combination of newness of items, quality and value.”
He said Costco's strong meat and grocery sales suggest shoppers are eating out less and cooking at home more.
And, he added, the retailer has experienced a “rift with members,” with some still spending on “high-quality, premium cuts” while others have “a bias toward lower price-per-pound items in categories such as poultry and cuts.” also had beef and pork.
According to an LSEG analyst survey, Warehouse Club performed as follows in the fiscal first quarter compared to Wall Street expectations:
- Earnings per share: $4.04 vs. expected $3.79
- Revenue: $62.15 billion vs. expected $62.08 billion
For the three-month period ended Nov. 24, Costco's net income rose to $1.80 billion, or $4.04 per share, compared with $1.59 billion, or $3.58 per share share in the same period last year. Sales rose from $57.80 billion in the same period last year.
Costco has benefited from its reputation for selling bulk items at a better price as U.S. households feel the cumulative effect of higher food and housing prices. The membership-based club also increased its annual membership fee for the first time in about seven years. The quarterly results are the first that Costco has reported since that fee increase took effect in September.
Costco's membership fee revenue came in at $1.17 billion, compared to the $1.16 billion that Wall Street had expected. Excluding the impact of foreign exchange rates, it rose almost 8% year-on-year.
However, in the company's earnings call, Millerchip said the increase in membership dues due to the postponed accounting has not yet had a major impact. This represented less than 1% of fee growth in the quarter, he said.
The company's comparable sales increased 5.2% year-over-year. In the USA, comparable sales also rose by 5.2%.
During the quarter, customers visited Costco's stores and website more frequently. Traffic increased 5.1% globally and 4.9% in the US. The company's average ticket increased 0.1% globally and 0.3% in the U.S., including the negative impact of gas deflation and foreign exchange rates. Without these factors, the average ticket price would have increased by 2% worldwide and 2.3% in the US
Gold and jewelry, gift cards, home furnishings, sporting goods, health and beauty aids, luggage kiosks and hardware all posted double-digit increases year-over-year, Millerchip said.
In Costco's fresh produce category, which includes items like fruits and vegetables, sales grew in the high single digits in the quarter, Millerchip said. Meat sales increased by double digits as some members continued to purchase more expensive premium cuts and other lower-priced options, he said.
Costco's private label brand, Kirkland Signature, is growing faster than its overall business, Millerchip said. And he added that Costco was able to lower prices on some items, such as Kirkland's organic peanut butter, its chicken broth and its Sauvignon Blanc.
He said the club's food courts, optical departments and travel services, such as car rentals and cruise bookings, also performed well in the quarter, but gasoline sales fell in the low double digits as prices per gallon fell.
E-commerce sales increased 13% in the quarter compared to the same period last year. The company is gaining market share by shipping large and bulky items, CEO Ron Vachris said in the company's earnings release, reaching nearly 1 million shipments in the quarter, setting a new record.
According to Millerchip, online traffic, conversions and average order value increased year over year.
Membership renewal rates were 90.4% globally, down one-tenth of a percent, Millerchip said in the company's earnings call. He said renewal rates fell slightly as more new members were attracted through digital channels. He said those enrollments tend to renew a little slower.
The quarter ended with 77.4 million paid household members, up about 8% year-over-year, or 138.8 million cardholders.
Costco also set new records in its U.S. bakery division, selling 4.2 million pies in the three days before Thanksgiving and selling 274,000 full pizzas at its food courts across the country on Halloween, Vachris said on the call.
Costco opened seven new clubs in the quarter and plans to open 29 during the fiscal year, including three moves, Vachris said. Ten of these clubs will be outside the United States. The company has a total of almost 900 clubs, 617 of which are in the USA and Puerto Rico.
As of Thursday's close, Costco shares were up nearly 50% so far this year, outpacing the S&P 500's 27% gains over the same period. Shares closed at $988.39 on Thursday.
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