Costco (COST) exceeded expectations in its fiscal first quarter, reporting adjusted earnings per share of $4.04, surpassing the Bloomberg consensus estimate of $3.81. Revenue also topped predictions, reaching $62.15 billion compared to the anticipated $61.98 billion. This strong performance signals a continued reliance on wholesale retailers as consumers navigate easing inflation.
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Costco attributed its success to offering “newness of items, quality, and value,” as CFO Gary Millerchip explained during the earnings call. This strategy resonates with members who remain willing to spend as inflationary pressures subside.
Strong Sales Growth Across Regions
Same-store sales, excluding fuel, saw a robust 7.2% increase, driven primarily by the US market, followed by international and Canadian operations. While foot traffic, at a 5.1% rise, fell slightly short of the 6.87% projected by Wall Street, the average transaction value grew by 0.1%, exceeding the anticipated 0.40% decline.
This positive trend indicates that consumers are consolidating their shopping trips and potentially purchasing more items per visit, a behavior often observed during periods of economic uncertainty.
Shifting Consumer Spending Habits
Millerchip highlighted a noticeable “bifurcation” in consumer food purchasing patterns. While some members continue to opt for premium meats, others are gravitating towards more budget-friendly options like poultry and select cuts of beef and pork. This diversified approach suggests a continued sensitivity to price even as inflation eases.
Costco Outperforms Market Despite Flat Post-Earnings Trading
Despite the positive earnings results, Costco shares remained relatively flat following the announcement. However, the company’s year-to-date stock performance boasts an impressive over 50% surge, significantly outpacing the S&P 500’s 27% gain. This sustained growth underscores Costco’s resilience and strong market position.
Detailed Q1 Financial Performance
A closer look at Costco’s fiscal first quarter results, ending December 4, 2024, reveals a comprehensive picture of its financial health:
- Revenue: $62.15 billion (vs. $61.98 billion expected)
- Adjusted EPS: $4.04 (vs. $3.81 expected)
- Comparable Sales Growth (ex-fuel): 7.2% (vs. 6.26% expected)
- US: 7.2% (vs. 6.14% expected)
- Canada: 6.7% (vs. 5.68% expected)
- International: 7.1% (vs. 7.08% expected)
- E-commerce Growth: 13.2% (vs. 14.1% expected)
- Membership Fee Revenue: $1.17 billion (in line with expectations)
Navigating Potential Tariff Impacts
While celebrating its current success, Costco remains vigilant about potential challenges. The company acknowledges the uncertainty surrounding potential tariffs under the incoming presidential administration. CFO Millerchip expressed concerns, stating that tariffs are “not something that we see as a positive in general.”
Costco is exploring various strategies to mitigate potential tariff-related impacts, including adjusting inventory strategies, collaborating with vendors on cost management, diversifying sourcing locations, and reevaluating product offerings. With a quarter of its business comprised of non-food items, a subset of which are imported, Costco is well-positioned to adapt to changing trade policies.
Membership Fee Increase Contributes to Growth
Costco’s recent membership fee increase, implemented on September 1st, contributed to the strong financial performance. This marked the first full quarter with the higher fees, demonstrating the company’s pricing power and customer loyalty. The Gold Star membership now costs $65, up $5, while the Executive membership is priced at $130, a $10 increase.
Conclusion: Costco’s Continued Strength in a Dynamic Market
Costco’s first-quarter results showcase its ability to thrive in a changing economic landscape. By focusing on value, adapting to evolving consumer preferences, and proactively addressing potential challenges, Costco continues to solidify its position as a leading wholesale retailer. The company’s strong financial performance, coupled with its strategic planning, positions it for continued success in the coming quarters.
