Wholesaler Costco announced fourth-quarter results late Tuesday amid a wider downturn for retailers and mixed performance for discounters. Costco stock climbed Wednesday, nearing a buy point.
Costco earnings growth slowed after two quarters of accelerating gains. Adjusted earnings climbed nearly 16% to $4.86 per share adjusted, compared to an 18% gain the prior quarter. Total revenue grew 9.5% to $78.94 billion, ending a streak of decelerating growth for the past four quarters.
Analysts polled by FactSet expected Cisco earnings for the August-ending quarter to increase 14% to $4.79 per share. Revenue was seen climbing 7.8% to $77.72 billion.
Adjusted comparable sales, which exclude changes in gas prices and foreign currencies, rose 3.8%. U.S. comparable sales climbed 3.1%. Same-store sales in Canada increased 7.4%. Other international comparable sales rose 4.4%. However, e-commerce comparable sales fell 0.6% for the period.
Fiscal 2023 earnings rose 7.9% to $14.16 per share on 6.8% revenue growth to $242.29 billion. Full-year adjusted comparable sales climbed 5.2%. Costco's U.S. comparable sales rose 4.2% for the year. E-commerce sales fell 4.8% in 2023.
Increasing the price of Costco memberships is "a question of when, not if," CFO Richard Galanti said in the earnings call. The company last increased its membership fees in June 2017. "You'll see it happen at some point. We can't really tell you if it's in our plans or not."
Costco executives noticed the largest spending pullback in big ticket discretionary items. Meanwhile, the wholesaler is gearing up for the holidays and bringing in seasonal items early. Gaming products and Christmas-related items are "starting off well so far," Galanti said.
Inventory shrink, which refers to retail theft, hasn't been as big as a problem for Costco as it has for other retailers. Galanti noted inventory shrink increased "by a couple basis points" over the past several years, which Costco attributes to the rollout of self-checkout. Shrink increased by less than one basis point over the past year.
Target announced the closure of nine stores on Tuesday citing theft.
Costco Stock
COST stock rose 1.9% to 563.53 Wednesday, climbing back above its 50-day moving average and 10-day line. Shares eased 1.3% in premarket trade.
Costco stock is trading in a flat base with a 571.16 buy point. The buy zone, which stretches 5% beyond the buy point, would extend to 599.71. Investors could use the Sept. 20 high of 569.22 as an early entry.
The 7% flat base formed next to a longer consolidation.
COST stock is up 4.7% for the quarter despite the broader retail downturn. The stock has rallied 23.5% so far this year.
Costco has partnered with Sesame, an online health care marketplace, to offer price discounts for services including primary health care, mental health visits and pharmacy visits, Bloomberg reported Monday. Costco members will be eligible for $29 online primary care visits, $79 mental health visits and 10% discounts for other services.
Retailer Performance Mixed
The overall U.S. retail sector is still a "vast market set for further growth," HSBC wrote in a Friday note. The coronavirus pandemic accelerated the retail shift to digital/online channels. But well-developed methods of drawing customers to purchase goods online after visiting a store — what the analyst calls offline-to-online approaches — appear key to building and maintaining market share.
HSBC initiated coverage of Costco, Target, Home Depot and Lowe's with hold ratings. The bank has a $600 price target for Costco stock.
HSBC said Walmart is its preferred name in retail, while Dollar General is on the bottom of the list. Dollar General lacks a digital strategy and has greater exposure to consumer spending on discretionary goods, a metric showing signs of slowing, according to HSBC.
Most retailer stocks are struggling after a wave of slashed outlooks and warnings of slower consumer spending in August. Target stock fell 11% over the past month and is down nearly 15% for the quarter, MarketSmith data shows. Discount retailers Five Below, Dollar Tree and Dollar General tumbled 25% to 36% for the quarter.
Walmart, off-price retailer TJX, Costco rival BJ's Wholesale Club and close-out chain Ollie's Bargain Outlet are still doing well. WMT stock climbed about 2.9% over the past quarter while TJX rose 4.3%. BJ stock jumped 16.5% during the period while OLLI shares spiked 30%.
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