"Cautious US Spending: Costco's Q1 Profit Beats, Revenue Misses, Shares Fall 1% After Hours"

The favorite of the American middle class - Costco, the largest membership-based warehouse supermarket in the country, has mixed financial results. Profit growth has slowed but is still stronger than expected, while revenue growth has slowed more than expected. Although the increase in customer traffic supports profit growth, customers are more cautious in their spending, affecting revenue.

On Thursday, September 26, Eastern Time, after the U.S. stock market closed, Costco released its financial data for the fourth quarter (hereinafter referred to as the fourth quarter) of the company's fiscal year 2024, which ended on September 1, 2024.

1) Main financial data:

Operating income: The revenue for the fourth quarter was approximately $79.7 billion, a year-on-year increase of nearly 1%, with analysts expecting $79.96 billion, and a year-on-year increase of nearly 9.1% in the previous quarter.

Advertisement

EPS: Diluted earnings per share (EPS) were $5.29, a year-on-year increase of 8.8%, with analysts expecting $5.07, and a year-on-year increase of 29% in the previous quarter.

Same-store sales: Including the impact of gasoline prices and foreign exchange factors, same-store sales increased by 5.4% in the fourth quarter, with analysts expecting a growth of 4.27%, and a growth of 6.6% in the previous quarter; excluding these factors, same-store sales increased by 6.9% in the fourth quarter, and increased by 6.5% in the previous quarter.

2) Detailed business data:

Net sales: Net sales in the fourth quarter were approximately $78.2 billion, a year-on-year increase of nearly 1%, with an increase of 8.9% in the previous quarter.

Membership fees: Membership fees in the fourth quarter were $1.512 billion, a year-on-year increase of 0.2%, with an increase of 7.6% in the previous quarter.

E-commerce: E-commerce sales in the fourth quarter increased by 18.9%, with an increase of 20.7% in the previous quarter.Costco's stock, which fell nearly 0.8% on Thursday, accelerated its decline after hours, with the drop exceeding 1% at one point.

Fourth-quarter revenue growth slowed down more than expected, with customer traffic increasing but spending decreasing.

In the fourth quarter, both Costco's revenue and profit slowed down compared to the previous quarter. However, the slowdown in EPS earnings was not as severe as analysts had expected, while the revenue slowdown exceeded expectations, with the growth rate falling from over 9% to less than 1%, while analysts expected a slowdown to 1.3%.

In the fourth quarter, Costco's same-store sales growth in all markets slowed down compared to the previous quarter. In the main market, the United States, the same-store sales growth rate in the fourth quarter slowed down from 6.6% in the previous quarter to 5.3%. In the previous quarter, same-store sales in Canada and other international markets outside the United States both grew by 7.7%, while the growth rate in the fourth quarter was less than 6%.

The same-store sales data shows that customer traffic increased year-over-year in the fourth quarter, while the amount spent by customers decreased. In the United States, customer traffic for same-store sales in the fourth quarter increased by 5.6%, and the amount spent decreased by 0.3%. In Canada and other international markets, customer traffic in the fourth quarter increased by 7.7% and 8.1% respectively, and the amount spent decreased by 2.1% and 2.2% respectively. Overall, Costco's same-store customer traffic in the fourth quarter increased by 6.4%, and the amount spent by customers decreased by 0.9%.

Comments suggest that Costco's profit exceeded expectations, reflecting that consumer spending remains strong in the face of cost pressures. Historical records show that Costco's performance is not affected by macroeconomic challenges because customers have to pay a membership fee to shop at Costco, and these consumers are often wealthier.

Other comments suggest that the lower-than-expected revenue in the fourth quarter was due to cautious consumer spending and the impact of falling gasoline prices.

For the first time in seven years, before increasing membership fees, the renewal rate of members in the United States and Canada is nearly 93%.In July of this year, Costco announced its first increase in annual membership fees since June 2017, raising the fees by $5 to $65 for members in the United States and Canada starting from September 1st. Last year, Costco generated $4.6 billion in revenue from membership fees. Analysts are closely watching this increase in Costco's membership fees to determine if it will affect the company's revenue.

In the fourth quarter, Costco had 76.2 million paid members, a year-over-year increase of 7.3%; the global membership renewal rate was 90.5%, with a renewal rate of 92.9% for members in the United States and Canada.

Comments suggest that the implementation of the increased membership fees, which began this month, may take several months to observe the impact of this change on renewal rates or membership registrations.

Currently, Costco operates 891 stores worldwide, with 614 located in the United States and Puerto Rico, 108 in Canada, 35 in Japan, 7 in Mainland China, and 14 in Taiwan.