Costco Surpasses Earnings Expectations Amid E-commerce Growth and Strong Consumer Spending

Costco Wholesale Corp. delivered impressive fiscal first-quarter results, outpacing Wall Street estimates in both revenue and earnings. The membership-based warehouse retailer capitalized on rising e-commerce sales and continued consumer interest in diverse product categories, from jewelry to luggage and home furnishings, even as shoppers showed caution in their spending habits.

During an earnings call, Chief Financial Officer Gary Millerchip highlighted that while customers have been selective in their purchases, they remain willing to spend when presented with the right combination of quality, value, and novelty. This behavior underscores the nuanced impact of easing inflation on consumer decisions, especially in a challenging economic environment.

Costco’s ability to cater to varied customer needs was evident in the strong performance of its fresh food category. Sales of meat and produce surged, suggesting a broader trend of consumers opting to cook more at home rather than dine out. Millerchip noted a distinct “bifurcation” in purchasing patterns: some members opted for premium, high-quality cuts, while others leaned toward more budget-friendly choices like poultry and economical cuts of beef and pork.

In the quarter ending November 24, Costco reported a 13% increase in e-commerce sales, driven by innovations in its online shopping platform. CEO Ron Vachris emphasized that the company’s focus on delivering large and bulky items—a challenging segment in the online retail space—has paid off. Costco hit a milestone with nearly one million deliveries in the quarter, breaking its previous records. Enhanced online traffic, increased conversion rates, and a rise in average order values all contributed to this success.

The financial results reflect Costco’s resilience and adaptability. The company reported earnings per share of $4.04, surpassing analysts’ expectations of $3.79. Revenue reached $62.15 billion, exceeding the anticipated $62.08 billion. Compared to the same period last year, net income rose to $1.80 billion from $1.59 billion, and revenue showed a notable increase from $57.80 billion.

Costco’s membership model remains a cornerstone of its business strategy. Membership revenue reached $1.17 billion, reflecting an 8% year-over-year increase, excluding foreign exchange impacts. However, Millerchip clarified that the recent increase in annual membership fees, implemented in September, had a limited effect on this quarter’s results due to deferred accounting practices. The company’s membership renewal rates remain strong at 90.4% globally, though slightly down as digital channels attract newer members who typically renew at lower rates.

Comparable sales, a key metric in retail, grew by 5.2% globally and in the U.S., signaling robust performance despite broader economic pressures. Customer traffic increased 5.1% worldwide, and the average ticket size also showed slight growth, up 0.1% globally and 0.3% in the U.S., even after accounting for deflation in gasoline prices and currency fluctuations.

Costco’s Kirkland Signature private label brand outperformed the broader business, reflecting the company’s ability to deliver exceptional value. The retailer leveraged its scale to reduce prices on popular items, including organic peanut butter, chicken stock, and wine. Non-grocery categories also shined, with double-digit growth reported in gold and jewelry, home furnishings, health and beauty aids, and luggage.

The retailer’s food courts and ancillary services, such as optical departments and travel offerings, also showed strong growth. However, gasoline sales declined slightly due to falling prices per gallon, highlighting the nuanced impact of external factors on the business.

Beyond financial metrics, Costco demonstrated its operational excellence with remarkable achievements. Its bakery division set new records during Thanksgiving, selling 4.2 million pies in just three days. Meanwhile, its food courts sold 274,000 pizzas nationwide on Halloween, illustrating the enduring popularity of Costco’s signature offerings.

Costco also expanded its footprint during the quarter, opening seven new warehouse clubs and planning an ambitious rollout of 29 additional locations during the fiscal year. This includes three relocations and ten international openings, underscoring the company’s commitment to global growth. With nearly 900 warehouses worldwide, including 617 in the U.S. and Puerto Rico, Costco continues to strengthen its market presence.

Investors have taken notice of Costco’s strong performance. As of Thursday’s close, the company’s shares had surged nearly 50% this year, significantly outpacing the S&P 500’s 27% gain over the same period. Costco shares ended the day at $988.39, reaffirming its status as a market leader in retail.

Through strategic investments in e-commerce, competitive pricing, and an unwavering focus on value, Costco continues to deliver exceptional results. Its ability to adapt to evolving consumer trends and maintain strong membership loyalty positions the company for sustained growth in an increasingly dynamic retail landscape.

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