Costco Wholesale third-quarter earnings met Wall Street expectations while revenue edged past views, as the membership-based warehouse club appears to be weathering cost pressures and wavering consumers better than its big-box peers.
Costco Earnings
Estimates: Analysts believed Costco earnings would rise 11% to $3.04 per share. Revenue should climb 13% to $51.359 billion. Same-store sales were expected to increase by 11.7%.
Results: Costco's earnings per share increased 11% to $3.04. Net sales increased 16.3% to $51.61 billion. Same-store sales increased by 14.9%. Comps excluding gasoline and currency shifts climbed 10.7%.
Costco Stock
Costco stock initially fell in Friday's stock market trading. but rallied to close up 1.2% to 470.76. It rebounded 13% for the week, climbing every day. But that follows six weekly losses, including last week's 16% dive.
COST stock broke past a 545.39 cup-with-handle buy point on March 17, rising to 612.27 on April 7. But shares steadily retreated, breaking below their 50-day line and the buy point on April 29.
Costco stock has a 72 Composite Rating. Its EPS Rating is 92.
Meanwhile, Walmart, which also owns Costco rival Sam's Club, climbed 2% on Friday. Target stock rose 2.4%.
Retail Stock Woes
With concerns over rising prices, supply chain holdups and consumer uncertainty, retail stocks have sold off hard in recent days. Walmart and Target suffered major losses last week after the big-box giants posted weaker-than-expected quarterly earnings and lowered its guidance, stemming from the rising cost of goods and labor. Target said consumer spending remained strong, but shifted away from TVs and other big-ticket discretionary items, resulting in excess inventory.
Thursday gave investors a clearer picture of consumer habits with Costco earnings following Dollar Tree and other specialty discounters reporting before the open. Dollar Tree and Dollar General surged on strong earnings, while Burlington Stores rallied despite weak results and guidance. Macy's and Williams-Sonoma also cheered retail stock investors on Thursday and for the week.
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Costco consumers purchased more gasoline, tires, candy, toys, jewelry, home furnishings and food in the third-quarter. Liquor, along with office supplies, sporting goods and hardware all underperformed, according to COST.
Retailers are also experiencing large inventories, as consumers shift spending habits. Costco reported that its total third-quarter inventory was up 26% year-over-year.
Senior Vice President of Finance Bob Nelson told analysts on Thursday's earnings call that the company is purposely building inventory in its e-commerce business.
Membership Has Its Privileges
With the bulk of Costco's profits coming from its membership model, the warehouse retailer seems better positioned than discount rivals to keep product costs down for consumers.
"Club stores like Costco are typically the last to raise prices and the first to lower prices, and again this is because they need to keep their members happy and renewal rates up," CFRA analyst Arun Sundaram wrote in an email.
Costco currently has two tiers of membership at $60 and $120. The company's third-quarter revenue from those memberships increased to $984 million up from $901 million a year ago. But COST members may face a fee increase soon, with the company signaling earlier this year that the price could go up as soon as June.
Nelson on Thursday said the company is approaching the time frame when it could increase fees, but added that nothing is definitive.
"Given the current macro environment, the historically high inflation and the burden it is having on our members, and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time," he said.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
