Costco Q4 earnings top estimates, sales hold steady amid high gas prices
Costco held off raising its membership fee again, though the company warned the increase is 'a matter of when, not if.'
Costco's (COST) fourth quarter results beat estimates on both the top and bottom lines as consumers continued to flock to the retailer for value.
For the fiscal fourth quarter, Costco reported adjusted earnings per share of $4.86, higher than Wall Street expectations of $4.78. Revenue also came in higher at $78.94 billion, compared to expectations of $77.72 billion, per Bloomberg data.
The company's latest earnings, which were reported Tuesday after market close, come as major headwinds like higher gas prices, student loan repayments, and higher interest rates, among others, take a toll on Americans' wallets.
"We think the company is well-positioned to gain share in the current environment," Jefferies analyst Corey Tarlowe said following the results.
Same-store sales, including gas and foreign exchange, came in slightly lower than anticipated — up 1.1% compared with estimates of 1.87%. Excluding gas and FX, sales jumped 3.8%, slightly below expectations for 3.92%.
Raymond James analysts wrote in a note ahead of earnings that Costco’s gas business faces a difficult prior-year comparison given significant fuel margin expansion last year.
Investors appeared to take their cue from the same-store sales miss. Shares fell 2.3% in pre-market trading on Wednesday. The company's ticker page was the number one most active on the Yahoo Finance platform.
Gas prices spiked over the summer compared to earlier in 2023, making Costco's cheap fuel attractive for customers. As of Tuesday, the national average gas price stood at $3.84 per gallon, per AAA, slightly off the 2023 high but still below the recent peak of over $5 per gallon seen in 2022.
On the earnings call, CFO Richard Galanti said there has "not been a heck of a lot of change" when it comes to consumer spending amid fuel inflation.
Costco's average ticket size dropped 3.9% compared to a year ago due to "weakness in bigger-ticket nonfoods discretionary items as well as the gas price deflation." Galanti also noted the company added 40 or 50 "smaller-ticket indulgent items" to cater to changing consumer demand.
He also noted that the gas business continues to contribute to the company's bottom line.
"Gas has been stronger for us, and we believe [for] all retailers in the last few years," Galanti said. "At the end of the day, we feel good about our competitive position [on gas prices]. It's increased and we're still quite profitable. Down a little bit from a year ago, but nonetheless quite profitable."
Foot traffic did tick up 5.2% last quarter, compared to a 2.51% jump that Wall Street expected.
Placer.ai data showed that, compared to last year, visits to Costco were up 3% in August, 4.5% in July, and 3.6% in June. Meanwhile, overall visits to wholesale clubs and superstores dropped 1.9% in August and 0.4% in June and July.
The earnings rundown:
Here's what Costco reported in its fiscal fourth quarter versus Wall Street estimates, according to Bloomberg data:
Net sales: $77.43 billion versus $77.6 billion expected
Adjusted EPS: $4.86 versus $4.78 expected
Same-store sales growth: 1.1% versus 1.87% expected
E-commerce sales growth: -0.8% versus 5% expected
Inventory growth: -7.01% versus 7.31% expected
What else we're watching: Costco membership fees
Membership fees, a key revenue stream for the wholesale retailer, came in at $1.51 billion, higher than Wall Street expectations for $1.46 billion. In the third quarter, the company brought in $1.04 billion in membership fee revenue.
Costco's Galanti reiterated that the fee increase is "a question of when, not if" and admitted that the company has taken "a little longer this time" to raise its membership price.
The company typically raises prices every five years and seven months on average. Costco last raised membership prices in June 2017, and a Costco Gold Star membership costs $60 per year, while an Executive Membership goes for $120.
"We feel good ... about all the attributes of member loyalty and member growth," Galanti added.
As of Q4, the company has 71 million paid household members, up 7.9% compared to last year, and 127.9 million cardholders, up 7.6%.
"We’ve been anticipating [a membership fee increase] for a while now," CFRA analyst Arun Sundaram told Yahoo Finance Live, adding he expects the price hike to be between $5 and $10. "They’re really waiting for inflation to moderate before they decide to raise fees. But now we are starting to see inflation moderate. … I think we could see a membership fee increase announced by the end of this year."
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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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