Costco Wholesale topped fourth-quarter earnings estimates while reporting revenue in line with expectations Thursday. Costco stock dropped Friday after sliding Thursday ahead of earnings.
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 amid the current high inflation environment. Also, Costco customers are better off than a typical "discount" shopper. So while they're looking for good deals, they have the means to keep shopping.
Costco Stock; Earnings
Estimates: Analysts predicted Costco earnings would grow to $4.17 per share in Q4. Wall Street expected a revenue increase to $70.8 billion. Same-store sales were thought to be up 13.7%.
Results: Costco earnings increased 12% to $4.20 per share. Revenue grew 15% to $70.76 billion. Same-store sales, including gas sales, came in at 13.7%. Excluding gasoline and currency swings, comparable-sales grew 10.4%.
Full Fiscal Year: Costco's EPS increased 16% to $13.14 per share in the fiscal year while sales also grew 16% to $222.7 billion.
COST stock: Costco stock fell 4.3% to 466.40 Friday during market trading. Shares dropped 1.2% to 487.17 Thursday. COST stock is currently below both its 50-day and 200-day moving averages. Costco is struggling, and is definitely lagging BJ stock, but it isn't broken either.
Costco's top membership competitors include Walmart's Sam's Club and BJ's Wholesale Club. BJ stock fell 2.5% to 73.10 Friday and Walmart edged down 2.4%.
In late May, Costco met Wall Street expectations while revenue edged past views in the third quarter. Costco's EPS increased 11% to $3.04. Net sales increased 16% to $52.6 billion. Same-store sales increased by 14.9%. Comps excluding gasoline and currency shifts climbed 10.7%.
With more than 830 locations in eight countries and nearly 117 million cardholders, Costco is one of the largest membership warehouse chains worldwide. Late last month, Costco reported August sales of $17.55 billion, up 11% from a year ago. Same-store sales increased 8.7% for the month.
Costco stock has an 83 Composite Rating out of 99. It has a 77 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement. The rating shows how a stock's performance over the last 52 weeks holds up against all the other stocks in IBD's database. The EPS rating is 90.
The COST of Business
Costco's membership model, along with other club stores, means it is typically the last to raise prices and the first to lower prices, according to analysts. This gives these businesses a leg up on competition, but it also means that eventually membership fees will be increased.
At the end of August, Sam's Club announced price increases for its basic membership fee from $45 to $50 per year. It's "Plus" tier membership will also go up from $100 to $110. A price hike from one of Costco's main rivals comes after company earlier this year had signaled prices could go up as soon as June.
Costco CFO Richard Galanti said on Thursday during the Q4 earnings call that a membership fee increase is not yet coming.
"There are no specific plans regarding a fee increase at this time. We're pleased with our growth in both top line sales and membership households over the last several quarters," Galanti said. "We'll let you know when something is about to happen."
Costco currently has two tiers of membership at $60 and $120. The company's fourth-quarter revenue from memberships was $1.3 billion up from $1.2 billion a year ago. In the third-quarter, membership revenue increased to $984 million up from $901 million last year. For the full fiscal year, COST membership revenue was $4.2 billion, up 10% from the previous year.
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