Source – reuters.com
Costco Wholesale fell short of market expectations for its fourth-quarter revenue, impacted by consumers becoming more selective with their spending on higher-priced items and a decline in gasoline prices. The membership-based retailer reported that while demand for groceries and household staples remained strong, sales of larger-ticket items such as furniture, home goods, and sporting equipment were inconsistent.
Costco’s total revenue for the quarter rose by nearly 1% to $79.70 billion but missed analysts’ predictions of $79.97 billion, according to data from LSEG. However, despite the revenue miss, the company’s net income exceeded expectations, supported by improved profit margins.
Shifting Consumer Behavior and the Impact on Sales
Costco’s financial performance reflected changes in consumer behavior as inflationary pressures and economic uncertainty caused shoppers to be more careful with their purchases. “There are clear signs that consumers are being more choiceful in how they spend their money,” said Gary Millerchip, Costco’s Chief Financial Officer, during the post-earnings call. He noted that customers are increasingly seeking deals, particularly in categories like appliances and electronics, which have become more promotional over time.
The shift in spending patterns has also been evident in Costco’s e-commerce sales. While online shopping has helped boost sales as consumers prioritize convenience, the company’s e-commerce growth slowed slightly to 18.9% in the fourth quarter, compared to 20.7% in the previous quarter. Industry experts believe that shoppers are spreading their expenditures across both physical and online retailers. “Shoppers have not run out of steam but are redistributing their spending between various physical and online retailers,” said Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors.
Despite these challenges, Costco’s comparable sales—excluding the impact of fluctuating gas prices and foreign exchange rates—rose by 6.9% globally, outperforming consensus estimates. In the U.S., comparable sales were up 6.3%, while international markets saw even stronger growth.
Profit Growth and International Expansion
Although revenue fell short, Costco’s profitability remained strong. The company posted net income of $5.29 per share, beating analyst estimates of $5.08 per share and marking its fifth consecutive quarter of profit growth. The increased profitability was driven by a 40 basis point improvement in gross margins.
Looking ahead, Costco’s recent hike in membership fees, which took effect on September 1, is expected to contribute to future revenue growth. The company increased its annual membership fee for “gold star” members by $5 to $65 and for executive members from $120 to $130. Although the impact of this fee increase was not reflected in the fourth-quarter results, it is expected to provide a boost in the coming quarters.
Costco’s international expansion also continues to show promise. The retailer experienced strong foot traffic at its new store in Okinawa, Japan, and remains committed to growing its presence globally. As of the fourth quarter, Costco operates 891 warehouses worldwide, including 614 in the U.S. and Puerto Rico, 108 in Canada, and 35 in Japan. The company has also expanded its e-commerce operations to several key international markets, including Canada, the U.K., and Australia.
Despite a 1% drop in its stock price in extended trading, Costco shares have gained more than 35% year-to-date. Analysts, including Ken Taylor of Seeking Alpha, believe that while the stock may appear expensive, the company’s strong market share and international growth opportunities leave room for future upside. “These are the areas that Costco needs to win in to justify its high valuation,” Taylor said, referring to the company’s international and e-commerce sales growth.
As Costco continues to navigate shifting consumer preferences and expand its global footprint, investors remain cautiously optimistic about the retailer’s long-term potential.
Also Read: Costco Reports Strong Q3 Earnings, Exceeding Expectations but Shares Dip
