Costco's (COST) Q3 Earnings Top, Comparable Sales Rise 6.6%

Costco Wholesale Corporation COST came up with third-quarter fiscal 2024 results, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also increased year over year. Comparable sales also displayed a decent improvement, with the growth rate accelerating on a sequential basis. Costco's e-commerce sales also showcased a sharp rise.

Costco's strategic investments, customer-centric approach, merchandise initiatives and focus on membership growth have enabled it to gain market share and drive consistent revenue growth. By prioritizing value and quality, the company has fostered strong customer loyalty, resulting in high membership renewal rates.

Q3 Earnings & Sales Picture

Costco's third-quarter earnings per share came in at $3.78, comfortably beating the consensus estimate of $3.70 and reflecting an improvement from $3.43 per share reported in the prior-year quarter. Last year's quarterly number excluded non-recurring charges to merchandise costs of $298 million pretax (or 50 cents a share), mainly for the discontinuation of charter shipping activities.

Total revenues, comprising net sales and membership fees, reached $58.5 billion, marking a 9.1% increase from the year-ago quarter. The metric also came ahead of the Zacks Consensus Estimate of $58.1 billion.

In the quarter, Costco's comparable e-commerce sales increased 20.7% year over year. Excluding the impact of gasoline prices and foreign exchange, the metric jumped by an equivalent percentage.

Costco Wholesale Corporation Price, Consensus and EPS Surprise

Costco Wholesale Corporation Price, Consensus and EPS Surprise

Costco Wholesale Corporation price-consensus-eps-surprise-chart | Costco Wholesale Corporation Quote

Delving Deeper

Costco's net sales exhibited decent growth, increasing 9.1% year over year to reach $57,392 million, while membership fees saw a 7.6% increase to $1,123 million in the reported quarter. Net sales were favorably impacted by about 0.5-1% for the quarter from the shift of the fiscal calendar as a result of the fifty-third week last year.

For the quarter in focus, we had anticipated a 6.9% jump in net sales coupled with a 7.6% increase in total membership fees.

The company ended the quarter with 74.5 million paid household members, marking a 7.8% increase from the previous year. Additionally, the number of cardholders reached 133.9 million, reflecting a 7.4% rise over the same period.

Comparable sales rose 6.6% year over year in the third quarter, indicating a decent acceleration from the 5.6% increase recorded in the preceding quarter. Notably, this robust performance exceeded our expectation of 5.4% growth in comparable sales for the quarter.

Comparable sales for the quarter under discussion reflect an improvement of 6.2%, 7.7% and 7.7% in the United States, Canada and Other International locations, respectively. Traffic or shopping frequency rose 6.1% globally and 5.5% in the United States. Average transaction or ticket was up 0.5% worldwide and 0.7% in the United States.

Excluding the impact of foreign currency fluctuations and gasoline prices, the company witnessed comparable sales growth of 6.5% in the quarter. The United States, Canada and Other International locations registered comparable sales growth of 6%, 7.4% and 8.5%, respectively.

Costco's gross margin increased 52 basis points to 10.8%, faring better than our expectation of a 30 basis-point expansion. Operating income in the quarter increased 30.9% year over year to $2,197 million. Meanwhile, the operating margin (as a percentage of total revenues) increased 70 basis points to 3.8%. We had expected an operating margin expansion of 60 basis points.

Store Update

Costco currently operates 878 warehouses. These include 605 in the United States and Puerto Rico, 108 in Canada, 40 in Mexico, 33 in Japan, 29 in the United Kingdom, 18 in Korea, 15 in Australia, 14 in Taiwan, seven in China, four in Spain, two in France, and one each in Iceland, New Zealand and Sweden.

In the quarter, Costco opened two new warehouses in the United States. Since the end of the third quarter, the company has opened one additional warehouse in the United States and one in China. For the remainder of fiscal 2024, it plans to open 12 more locations, nine in the United States, two in Japan and one in Korea. This will result in 30 total openings, including one relocation, yielding a net addition of 29 new warehouses for fiscal 2024.

Financial Aspects

Costco ended the reported quarter with cash and cash equivalents of $10,404 million and long-term debt (excluding the current portion) of $5,834 million. Shareholders’ equity was $21,771 million. Management incurred capital expenditures of roughly $1.06 billion in the quarter and anticipates the same in the range of $4.3 billion to $4.5 billion for fiscal 2024.

Shares of this Zacks Rank #3 (Hold) company have advanced 8.8% in the past three months compared with the industry’s rise of 3%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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