costco Quarterly earnings and sales beat Wall Street estimates on Thursday, as e-commerce sales rose and shoppers bought jewelry, luggage and furniture.
On membership-based Warehouse Club’s earnings call, Chief Financial Officer Gary Millerchip said customers remain selective with purchases. But, he added, they have shown they are willing to spend, especially with inflation coming down, if they see a “combination of item novelty, quality and value”.
He said Costco’s strong sales of meat and produce indicate that shoppers are eating out less and cooking more at home.
And, he added, the retailer has seen a “split with members,” who are still consuming “higher-quality premium cuts” and others “gravitating toward lower cost-per-pound items across categories like chicken and cuts.” As well as beef and pork.”
Here’s how Warehouse Club did in the fiscal first quarter compared to what Wall Street was expecting, according to a survey of analysts at LSEG:
- Earnings per share: $4.04 vs. $3.79 expected
- Revenue: $62.15 billion vs. $62.08 billion expected
For the three months ended Nov. 24, Costco’s net income was $1.80 billion, or $4.04 per share, up from $1.59 billion, or $3.58 per share, in the year-ago period. Revenue increased from $57.80 billion in the same period last year.
Costco has benefited from its reputation for selling bulk items at good prices, as U.S. households feel the growing impact of higher food and housing costs. The membership-based club has raised annual membership fees for the first time in nearly seven years. The quarterly results are the first Costco has reported since fee increases took effect in September
Costco’s membership fee revenue came in at $1.17 billion, compared to the $1.16 billion Wall Street was expecting. Excluding the impact of foreign exchange rates, it grew by around 8% year-on-year.
But on the company’s earnings call, MillerChip said the increase in membership fees due to delayed accounting has not yet had much of an impact. That represented less than 1% of the fee increase in the quarter, he said.
Comparable sales for the company increased 5.2% year over year. In the US, comparable sales rose 5.2%.
Customers visited Costco’s stores and website more during the quarter. Traffic increased 5.1% worldwide and 4.9% in the U.S. The company’s average ticket price increased 0.1% globally and 0.3% in the U.S., including the negative impact of gas deflation and foreign exchange rates. If adjusted for these exclusions, average tickets would have risen 2% worldwide and 2.3% in the US
Gold and jewelry, gift cards, home furnishings, sporting goods, health and beauty supplies, luggage kiosks and hardware grew by double digits year over year, MillerChip said.
In Costco’s fresh division, which includes items such as produce, sales rose in the high single-digits in the quarter, Millerchip said. He said meat sales are up by double-digits, as some members continue to purchase premium cuts and other purchased lower-cost options.
Costco’s private label brand, Kirkland Signature, is growing faster than the total business, Millerchip said. And, he added, Costco has been able to lower prices on some items, such as Kirkland’s organic peanut butter, its chicken stock and its sauvignon blanc.
He said the club’s food court, optical division and travel services, such as rental cars and cruise bookings, also did well in the quarter, but gas sales fell to low double digits as the price per gallon fell.
E-commerce sales rose 13% in the quarter compared to the year-ago period. The company is gaining market share by shipping larger and heavier items, CEO Ron Vachris said on the company’s earnings call, and it made nearly 1 million deliveries in the quarter, which was a new record.
Online traffic, conversions and average order value have increased year over year, Millerchip said.
Membership renewal rates were 90.4% globally, down one-tenth of a percentage point, Millerchip said on the company’s call. Renewal rates are declining slightly as it attracts more new members through digital channels, he said. He said those signups tend to renew at a slightly lower rate.
It ended the quarter with 77.4 million paying household members, up nearly 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 over the three days of Thanksgiving and 274,000 whole pizzas in its food courts across the country on Halloween, Vakris said on the call.
Costco opened seven new clubs in the quarter and plans to open 29 new clubs, including three relocations, Vakris said. Ten of those clubs will be outside the United States.The company has a total of about 900 clubs, including 617 in the United States and Puerto Rico.
As of Thursday’s close, shares of Costco were up nearly 50% so far this year, outpacing the S&P 500’s 27% gain over the same period. Shares closed Thursday at $988.39.
