Over the past three years, Costco has gained momentum, benefiting from trends such as increased home cooking, millennials moving into larger suburban homes, and inflation driving shoppers to seek value through memberships at warehouse clubs.
Membership-based retail giant Costco Wholesale Corp (NASDAQ: COST) recently announced its quarterly earnings and the results were nothing short of impressive.
Costco Earnings Surpasses Expectations
Costco’s fiscal fourth-quarter earnings have surprised analysts and investors alike. The company reported earnings per share of $4.86, surpassing the expected $4.79 per share. Additionally, Costco’s revenue for the quarter reached $78.9 billion, outperforming the expected $77.9 billion.
Costco’s net income for the fiscal fourth quarter also demonstrated remarkable growth. It reached $2.2 billion, or $4.86 per share, compared to $1.87 billion, or $4.20 per share, in the same period the previous year.
One of the key takeaways from Costco’s earnings report is the shift in shopping patterns among consumers. Chief Financial Officer Richard Galanti noted that while shoppers visited Costco stores more frequently, they spent less on high-priced items.
Costco’s success can be attributed to its ability to attract more shoppers to its stores. Worldwide, traffic increased by 5.2% year over year, with a 5% increase specifically in the United States. However, the average transaction amount dropped nearly 4% globally and 4.5% in the United States, indicating that customers were making more frequent but smaller purchases.
Costco’s comparable sales, which measure the performance of stores open for at least a year, rose by 1.1% year over year. However, the growth was more modest in the United States, with a 0.2% increase.
Excluding changes in gas prices, the metric saw more substantial growth, rising 3.8% overall and 3.1% in the United States. This suggests that the company’s core business remains strong and is less affected by external factors.
Costco’s Membership Growth and Value
Another standout feature of Costco’s recent success is the steady growth in its membership base. Over the past three years, Costco has gained momentum, benefiting from trends such as increased home cooking, millennials moving into larger suburban homes, and inflation driving shoppers to seek value through memberships at warehouse clubs.
During the reported quarter, Costco added nearly 8% more paid household members, bringing its total to a staggering 71 million. This growth outpaced the rate of new store openings, showcasing the ongoing appeal of Costco’s membership model.
Moreover, Costco has succeeded in encouraging more members to opt for its higher-tier Executive Membership, which costs $120 annually compared to the standard $60 membership. These executive members receive additional perks and benefits. As of the end of the quarter, Costco boasted 32.3 million paid executive memberships, making up over 45% of all paid memberships and accounting for approximately 73% of the company’s global sales.
However, in the US, Costco’s largest market, sales trends have somewhat slowed compared to the surge seen during the early days of the pandemic. Comparable sales in the past two quarters have been roughly flat compared to the prior year.
Despite these challenges, Costco remains proactive in its expansion plans. The company intends to open ten new stores in the next three months, including nine in the US and one in Canada. This follows the successful addition of 23 net new locations in the fiscal year, including stores in China, Japan, and Australia.
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