Costco Stock Slips on Fourth Quarter Earnings; Hot Dog, Membership Fee

Wholesale Costco (COST) Shares fell on Friday after the bulk retailer posted better-than-expected fourth-quarter earnings but noted pressure on profit margins amid rising cost inflation and changing consumer habits.

Costco said diluted earnings for the three months ending Aug. 28, its fourth fiscal quarter, rose 11.7% from a year ago to $4.20 per share, beating Street forecasts. of about 4 cents per share.

Total revenue rose 15% to $72.091 billion, just ahead of analyst forecasts of a total of $72.07 billion, with membership revenue up 7.5% to $1.327 billion . Same-store sales rose 13.7% globally and 15.8% in the United States, Costco said, with e-commerce sales rising 7.1%.

Gross margins narrowed about 80 basis points to 10.18%, Costco noted, while overall inventory rose 26% from a year ago, with a slight improvement in “just last few weeks”.

The group also said it saw signs of moderating inflationary pressures and noted that sales for the season “appear to be going well”.

“In terms of membership fees and a possible increase, there are no specific plans regarding a fee increase at this time,” Chief Financial Officer Richard Galanti told investors on a conference call Thursday. evening. “We are pleased with the growth in our sales and membership households over the past few quarters and with member loyalty as evidenced by the increase in member renewal rates.

“We’ll let you know when something is about to happen,” he added, noting that higher-margin businesses like gasoline sales and travel services “help us be more aggressive.” in other areas (and) keep the price of hot dogs and soda a little longer, forever.”

Costco shares fell 3.3% in premarket trading to point to a Friday opening price of $471.01 apiece, a move that would extend the stock’s six-month decline to around 15%.

Lower gas prices may explain why revenue was only slightly ahead of forecast as pump costs fell more than 20% from their all-time high of $5.10 per gallon in early June through the end of Costco’s fourth quarter, while core inflation fell 1% in May. to 0.1% in August.

“We see no slowdown in Costco’s strong revenue trends, which have been consistent in the +30% range on a three-year basis,” said DA Davidson analyst Michael Baker, who retained its “neutral” rating after last night’s earnings while lifting its $5 price target to $445 per share.

“But we believe Costco’s premium valuation requires a higher pace of earnings and earnings, and better gross margin trends,” he added. “As such, we wouldn’t be surprised to see some pressure on the title.”

Earlier this week, big retail rival Target Corp (TGT) unveiled plans to hire 100,000 staff to support its holiday sales efforts, adding that it plans to offer early seasonal discounts while continuing to monitor stock levels following an unwanted buildup earlier this year , a plan that contrasts with just 40,000 planned seasonal additions at rival Walmart (WMT) .

Deloitte’s holiday retail sales forecast, released earlier this month, indicates that overall holiday purchases will increase between 4% and 6% from last year to around $1.46 trillion, a marked slowdown from the 15% gains recorded during the same period in 2021.

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