The parent company of Costco Warehouses reported higher-than-expected quarterly profits as lower inflation boosted customer traffic and spending.
The big-box retailer reported earnings of $5.29 per share for the period from 1er June to 1er September, exceeding the average estimate ($5.08) of analysts on Wall Street.
With inflation slowing, consumers are buying more non-food items, said Chief Financial Officer Gary Millerchip. Furniture and household items and tires sold particularly well. Some products, such as consumer electronics and appliances, are becoming cheaper.
“The value of Costco’s exclusive offerings continues to resonate with consumers, who are increasingly selective in their spending,” wrote Truist Securities analyst Scot Ciccarelli. Costco is generally insulated from macroeconomic fluctuations because its customers are retained through membership fees and are, on average, wealthier.
Sales in the United States increased by 5.3% compared to the same quarter in 2023. Over the same period, e-commerce increased by 19%.
Quarterly sales of fresh food also increased. Executives said they have reduced the price of some Kirkland house brand products, such as boneless chicken tenders and Spanish olive oil. Upstream, manufacturers and suppliers also grant more discounts.
Increase in membership fees
Traffic is up in the United States compared to the same period in 2023, although customers spent slightly less per visit. Costco said it added more paying members, while 90% of members whose cards had expired renewed their memberships. Costco increased its membership fees in the United States and Canada this month. It will take months to see the impact of this measure on memberships and renewals.
Mr. Ciccarelli notes that Costco is in the process of making changes that could displease customers. So, you will now have to scan your card at the entrance; and its popular roast chickens are now sold in bags rather than solid containers. “These changes are not revolutionary, but they could weigh on sales. However, the evaluation of the title leaves very little room for error,” he writes.
The stock fell below $900 on Friday, losing $15.82, or 1.75%, to $885.62 on the NASDAQ.
Selective buyers
U.S. retailers reported mixed quarterly results, showing consumers are selective as the holidays approach.
Early projections for Christmas spending indicate a slight increase in in-store sales and a larger jump in online sales.
Walmart and Target report that consumers are focusing on essential purchases, but see no signs of retrenchment. However, Home Depot observes that consumers are postponing big purchases due to economic uncertainty. Dollar stores say low-income shoppers are under pressure.
Possible strike by American longshoremen
With the holidays approaching, Costco CEO Ron Vachris said the company is prepared for a possible strike at U.S. ports on the East Coast and Gulf of Mexico. Costco, which primarily imports non-food products accounting for about 25% of its total revenue, has moved forward some orders to arrive before the longshoremen’s collective bargaining agreement expires at midnight Monday night.
He also planned contingency plans, such as importation through other ports.