Wall Street should stop worrying about Costco's momentum. It remains intact. Sales fluctuations are an integral part of retailing.
That's the consensus among a group of experts contacted by International Business Times following the release of its second quarter of fiscal 2024 last week. The quarter showed a miss in analysts' revenue growth estimate, which prompted a sell-off in the company's shares on Wall Street.
"In the retail industry, it is essential to recognize that fluctuations are a natural part of business operations," said Jon Morgan, CEO and Editor-in-Chief for VentureSmarter. "Several factors, including economic conditions, consumer behavior, and market competition, can influence these fluctuations. However, recent financial reports indicate that Costco is not losing momentum. The company has demonstrated strong performance and growth in recent quarters."
Morgan points to the company's fourth quarter of fiscal year 2023; Costco reported net sales of $77.43 billion, representing an annual growth of 9.4%. It's a positive sign that the company keeps attracting and retaining customers.
"In addition, net income for the same quarter increased to $2.2 billion, up from $1.87 billion the previous year," he stated. "This increase in net income demonstrates that Costco is increasing sales while also effectively managing costs and operations to improve profitability."
He sees this momentum continuing into the second quarter of fiscal year 2024, with Costco's net sales rising 5.7% to $57.33 billion. "This continued sales growth indicates that the company is maintaining its momentum while successfully navigating the retail industry's challenges," he explained. "Plus, net income for this quarter was $1,743 million, up from $1,466 million last year. This increase in net income demonstrates Costco's strong performance and ability to generate profits in a competitive retail industry."
Jenn Szekely, President at Coley Porter Bell US, believes that investors disappointed by the company's last report may have misread the numbers.
"Costco recently embarked on expanding its offerings by selling gold and silver, a move which is a significant change in direction considering the brand is largely known as a place for shoppers to bulk-buy day-to-day purchases at lower prices, as well as its $1.50 hot-dog-and-soda combo," she added.
Szekely believes this strategy has paid off, as Costco's quarterly e-commerce sales increased at an annual rate of 18.4% compared to the previous year. "And the brand knows it can build on this momentum to further increase sales," she continued. Last quarter, customers spent $100 million on Costco's 24-karat gold bars, and more recently, the brand has released a new set of silver coins, priced at $675."
She thinks this is an auspicious development for the company. "Costco has opened a door of significant potential by targeting precious metal investors and collectors, and with the current economy, plus gold and silver historically being a smart hedge against inflation, I am sure many of its existing customers are also getting in on the action," she added.
Costco's continued momentum is further confirmed by consumer satisfaction surveys, including the American Satisfaction and the Verint indexes, where the company occupies top positions.
In addition, Costco's management has done a great job in allocating capital. The company's Economic Valued Added (EVA), a measure of economic profit has risen from $1.07 billion in 2018 to $1.72 billion by 2023.
Jim Eckels, a PA Consulting growth strategy expert, thinks Costco's economic fundamentals remain strong. "Its Q2 Earnings Per Share exceeded expectations," he said. "The stock price has grown over 50% in the past year, so a small correction isn't unexpected."
He added: "Costco continues to see strong membership growth and high renewal rates. Further, it is still holding its 'ace in the hole' as a membership fee increase, the first since 2017. While this won't significantly impact revenue, it will materially impact profitability."
