Costco Wholesale Corporation (COST) surpassed analyst expectations in its fiscal first quarter earnings report, demonstrating the resilience of the wholesale model in a challenging economic environment. The company’s strong performance highlights the continued shift in consumer behavior towards value-oriented shopping amid persistent inflationary pressures.
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Costco reported adjusted earnings per share (EPS) of $4.04, exceeding the Bloomberg consensus estimate of $3.81. Revenue also topped projections, reaching $62.15 billion compared to the anticipated $61.98 billion. This positive outcome underscores the company’s ability to attract and retain customers seeking affordability and bulk purchasing options.
Strong Same-Store Sales and Membership Growth Drive Performance
A key driver of Costco’s success in Q1 was a robust 7.2% increase in same-store sales, excluding fuel. This growth was fueled by strong performance across all geographic segments, with the US leading the way, followed by international markets and Canada. While foot traffic growth of 5.1% fell slightly short of Wall Street’s expectations, a 0.1% increase in ticket size indicates that customers are spending more per visit, offsetting the slightly lower traffic.
CFO Gary Millerchip attributed the positive results to Costco’s ability to consistently offer “newness of items, quality, and value,” resonating with consumers seeking both affordability and a diverse product selection. He noted a “bifurcation” in consumer food purchasing patterns, with some opting for premium meats while others gravitate towards more budget-friendly options like poultry and select cuts of beef and pork. This adaptability to varying consumer preferences underscores Costco’s strategic approach to catering to a broad customer base.
Membership Fee Increase and Expansion Plans Contribute to Long-Term Growth
Costco’s recent membership fee increase, implemented in September 2024, contributed to a 7.8% rise in membership fee income, reaching $1.17 billion. The company’s decision to raise fees after a seven-year hiatus reflects confidence in its value proposition and customer loyalty. With renewal rates at a strong 90.4% and a 7.2% year-over-year increase in total cardholders, reaching 138.8 million, the membership model remains a cornerstone of Costco’s sustained profitability.
Furthermore, Costco’s ongoing expansion plans, with approximately 30 new warehouses expected to open annually, signal a commitment to long-term growth. The company’s strategic focus on international markets, with roughly half of the new openings planned outside the US, highlights its ambition to broaden its global footprint and capitalize on emerging market opportunities.
E-commerce Performance and Future Outlook
Despite slightly missing estimates, Costco’s e-commerce business experienced a healthy 13.2% growth in Q1, driven by strong sales in categories such as gold, jewelry, hardware, and home furnishings. The increase in average online order value and site traffic demonstrates the continued momentum in online shopping.
Analysts remain optimistic about Costco’s future prospects, citing its strong market position, ability to capture market share, and consistent focus on delivering value to its members. While a potential stock split is not currently on the horizon, the company’s impressive financial performance and strategic initiatives position it for continued success in the dynamic retail landscape.
