E-Commerce Sales Drive Earnings Beat
Costco wholesale outperformed Wall Street expectations for its fiscal first quarter, reporting robust earnings and sales fueled by a notable 13% growth in e-commerce. The membership-based retailer recorded earnings per share of $4.04, exceeding analysts’ projections of $3.79, and revenue of $62.15 billion, slightly above the anticipated $62.08 billion. Costco’s net income climbed to $1.80 billion compared to $1.59 billion in the same quarter last year, as the retailer capitalized on its reputation for value-driven bulk goods amid persistent inflation pressures.
Chief Financial Officer Gary Millerchip highlighted shifts in consumer behavior, with customers gravitating toward value-oriented purchases in categories like meat and produce. He also noted the appeal of new, high-quality, and value-driven products across jewelry, luggage, and furniture, as shoppers balance discretionary spending with economic constraints. The company’s private label, Kirkland Signature, continues to outpace overall growth, supported by strategic price reductions on key items like organic peanut butter and chicken stock.
Membership and Store Performance
Costco’s membership revenue saw an 8% year-over-year increase, reaching $1.17 billion, bolstered by a recent fee hike—its first in seven years. Despite the hike’s minimal short-term impact due to deferred accounting, membership renewal rates remained strong at 90.4% globally. The retailer also reported an 8% year-over-year rise in paid household members, totaling 77.4 million, with 138.8 million total cardholders.
Comparable sales rose by 5.2% both globally and in the U.S., as customer traffic increased 5.1% worldwide. Strong performances were seen in the fresh food category, particularly in meat and produce, and the food court segment, which reported record-breaking sales during seasonal peaks like Thanksgiving and Halloween. Additionally, the company achieved nearly 1 million e-commerce deliveries in the quarter, a milestone that underscores its growing online presence.
In terms of expansion, Costco Wholesale opened seven new locations in the quarter and aims to add 29 clubs during the fiscal year, including international markets. The retailer currently operates nearly 900 clubs globally, with 617 in the U.S. and Puerto Rico.
Strategic Gains Amid Market Challenges
Costco’s strategic focus on value offerings, bulk goods, and diverse product categories has positioned it well against inflationary pressures. The company’s investments in e-commerce logistics, such as shipping larger items, have driven record traffic, conversion rates, and average order values. According to CEO Ron Vachris, Costco is capturing market share in bulky goods, which contributed to the e-commerce sales surge.
Despite a decline in gas sales due to lower prices per gallon, Costco’s ancillary businesses, including travel services and optical departments, continued to thrive. The company also broke records in its U.S. bakery division, selling 4.2 million pies in the days leading up to Thanksgiving and 274,000 pizzas on Halloween.
Shares of Costco wholesale have surged nearly 50% in 2023, outperforming the S&P 500’s 27% gain during the same period. With a closing price of $988.39 on Thursday, the retailer’s stock reflects investor confidence in its ability to navigate economic challenges while sustaining growth through strategic initiatives and consumer-focused offerings.
