Costco stock (NASDAQ:COST) fell on Friday after the bulk retailer reported better-than-expected fourth-quarter results but warned of profit margin concerns due to rising inflation prices and changed customer patterns.
Costco said diluted profits for the three months ended August 28, its fiscal fourth quarter, increased 11.7% year on year to $4.20 per share, above Wall Street projections by around 4 cents per share.
Market Evaluation of Costco Stock
Total revenue increased by 15% to $72.091 billion, barely ahead of analysts’ expectations of $72.07 billion, with membership revenue rising by 7.5% to $1.327 billion. Costco said that same-store sales were up 13.7% internationally and 15.8% in the United States, with e-commerce sales up 7.1%.
According to Costco, gross margins fell by roughly 80 basis points to 10.18%, while total stocks were up 26% year on year, with some slight recovery in the “final few weeks.”
The organization also said that it is witnessing indications of easing inflationary pressures and that holiday sales “appear to be doing nicely.”
“There are no concrete intentions about a fee hike at this time,” CFO Richard Galanti told investors on a conference call late Thursday. “We’re happy with our recent increase in both top line revenue and membership households, as well as in member loyalty, as seen by rising member renewal rates.”
“We’ll let you know when anything is going to happen,” he continued, stressing that higher margin products such as petroleum sales and travel services “allow us to be more aggressive in other areas (and) keep the price on the hot dog and Coke a bit longer, forever.”
In pre-market trading, Costco stock (NASDAQ:COST)was marked 3.3% down to reflect a Friday opening bell price of $471.01 per, extending the stock’s six-month drop to approximately 15%.
Pump prices decreased more than 20% from their record high of $5.10 per gallon in early June to the conclusion of Costco’s fourth quarter, explaining why sales were only slightly ahead of estimates, while core inflation declined from 1% in May to 0.1% in August.
“We see no slowing in Costco’s solid top-line trends, which have been steady in the +30% area over the previous three years,” said D.A. Davidson analyst Michael Baker, who maintained his ‘neutral’ rating after yesterday night’s results while raising his price target to $445 per share.
“However, we think Costco’s premium value necessitates a larger profit and earnings beat, as well as improved gross margin trends,” he said. “As a result, we would not be surprised to see some stock pressure.”
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Author Okoro Chinedu 