Costco (COST) reported earnings for the fiscal second quarter after the market close on Thursday, March 2, that largely beat expectations. Shares are down more than 2% following the release.
As consumers sought value and moved away from discretionary spending, the wholesaler saw quarterly sales decline slightly to $55.27 billion, but down 6.5% from a year ago. Meanwhile, net sales rose 6.5% to $54.24 billion from $50.04 billion.
Here’s what Costco reported versus Wall Street estimates based on Bloomberg consensus data:
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Revenue: $55.27 billion versus $55.58 billion expected
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Adjusted earnings per share: $3.30 versus $3.21 expected
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Same Store Sales: by 6.8% compared to above 6.16% expected
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United States: Increase of 5.8% vs. expected increase of 5.56%
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Canada: Increase of 9.6% vs. expected increase of 5.51%
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Other international: 9.5% vs. 7.10% expected gain
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“People are spending their dollars where they feel like they should be,” Costco CFO Richard Galanti said when speaking to investors. The retailer saw sales increase in its fresh food, grocery and other categories and “weakness in large discretionary items” with a decline in non-food items like clothing, jewelry and electronics. This is similar to the results of recent Target (TGT) and Walmart (WMT) results.
In the US, sales were slightly lower than expected, rising 5.8% versus 5.56% estimates. Meanwhile, Costco saw strong same-store sales performance in Canada and internationally, both of which were higher than expected, up 9.6% and 9.5%, respectively.
Last quarter, e-commerce sales fell 9.6%.
An outlook for the first few weeks of FY23 third quarter: In the first four weeks of February, US sales are up 3.4% and Canada are up 1.2%. In the international business, sales increased by 6.5%. E-commerce sales recorded a -11.2% decline in February. Last month, the company posted net sales of $17.06 billion, up 4.7% from $16.29 billion a year earlier.
Private label business Kirkland Brands also gets an inflation boost. In recent months, the company saw “a larger than normal delta” to Kirkland Brands. For the second quarter, the company saw Kirkland Brands sales increase by about 1.5%, particularly in food penetration, compared to about 0.5% normally. Galanti jokingly called it a “trade-up,” adding, “People want to save money, and it’s our brand, that’s great, builds loyalty.”
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Increase in membership fee?
Talking to investors, Galanti reiterated, similar to previous quarters, “it’s a matter of when, not if,” it will raise prices. He then referred to the typical membership dues increase schedule, which is every 5 years and seven months, and brings up the next potential increase at…now.
Costco last raised prices in June 2017.
Galanti remains confident of the wholesaler staying on top, saying: “Our relative level of competitiveness is as strong as ever.”
For the quarter, membership fees brought in $1.03 billion, up 6.2% from a year ago and a notch above Wall Street’s estimate of $1.04 billion.
Stifel, who has a buy rating on the stock, expects “greater clarity over the next six months or so,” but that could be delayed given the current macroeconomic environment. “It is possible that a weaker consumer environment and strong comparable in-store sales and renewal rates could delay an increase compared to historical time.”
A Costco Gold Star membership is $60 per year and an Executive membership is $120.
That compares to Sam’s Club, owned by Walmart (WMT), which raised prices in August for the first time since 1999. This move increased annual fees from $45 to $50 for Club members and from $100 to $110 for Plus members.
At BJ’s, basic membership is $55 per year and bonus membership is $110.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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