Costco Exceeds Q1 Earnings Expectations Amid Membership Fee Hike Speculation

Costco Stock

Costco (NASDAQ:COST) has posted robust fiscal 2024 Q1 results, surpassing Wall Street estimates and prompting a surge in its stock during Friday trading. The wholesale giant reported adjusted earnings per share of $3.58, beating expectations of $3.41, with revenue reaching $57.8 billion, a 6% YoY increase compared to the expected $57.71 billion.

However, same-store sales, excluding gas and foreign exchange, fell below expectations, particularly impacted by performance in the US. Total same-store sales rose by 3.8% last quarter, slightly lower than the anticipated 4.3%. US same-store sales growth stood at 2.0%, falling short of the 2.77% forecast. Meanwhile, Canada exceeded estimates with a 6.4% same-store sales growth, and international stores reported a higher-than-expected increase of 11.2%.

Costco’s shares surged by nearly 5% during midday trading on Friday. The CFO, Richard Galanti, expressed pleasant surprise regarding foot traffic, highlighting momentum gained during the pandemic. Galanti noted that despite economic challenges, consumers are returning to purchasing discretionary items.

The company announced a special cash dividend of $15 per share, totaling $6.7 billion, marking its fifth special dividend in 11 years. Costco’s shares have witnessed an impressive 45% gain year-to-date, outpacing the S&P 500’s 19% increase.

Analysts, including Oliver Chen from Cowen and Rupesh Parikh from Oppenheimer, have shown positive sentiments toward Costco, with its private label Kirkland earning praise. Parikh, however, removed the retailer from its top pick rating due to valuation concerns following significant recent outperformance.

Key Q1 Results

  • Net Sales: $57.8 billion (vs. $57.71 billion expected)
  • Adjusted EPS: $3.58 (vs. $3.41 expected)
  • Same-Store Sales Growth: 3.8% (vs. 4.30% expected)
  • US Same-Store Sales Growth: 2.0% (vs. 2.77% expected)
  • Canada Same-Store Sales Growth: 6.4% (vs. 5.27% expected)
  • Other International Same-Store Sales Growth: 11.2% (vs. 9.24% expected)
  • E-commerce Sales Growth: 6.30% (vs. 6.10% expected)

As Costco’s CEO Craig Jelinek steps down on Jan 1, 2024, Ron Vachris, the current COO and president, will take over. The transition is described as seamless, given Vachris’s extensive tenure with the company.

There is speculation about a potential membership fee hike, as membership fees, a crucial revenue stream, were slightly lower than Wall Street estimates. Analysts suggest a fee increase could be likely soon, especially considering that Costco historically raises fees every five years and seven months on average. At the end of Q1, Costco had 72 million paid household members and 129.5 million cardholders.

Featured Image: Megapixl

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