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Costco Reports Strong Fiscal First Quarter Earnings

Costco (COST) recently announced robust earnings for its fiscal 2024 Q1 results, surpassing Wall Street’s expectations.

The Numbers

For the quarter, Costco reported adjusted earnings per share of $3.58, exceeding Wall Street expectations of $3.41. Revenue also outperformed, coming in at $57.8 billion, up 6% year over year, compared to expectations of $57.71 billion. This positive performance is according to Bloomberg data.

However, same-store sales, excluding gas and foreign exchange, fell short of expectations, particularly in the US. Total same store-sales increased 3.8% last quarter, compared to an expected 4.3% growth.

Regional Sales Breakdown

In the US, same-store sales growth came in at 2.0%, compared to the 2.77% expected. Canada surpassed estimates with a 6.4% same-store sales growth, while international stores also reported a higher-than-expected increase of 11.2%.

Positive Momentum

CFO Richard Galanti expressed optimism about the foot traffic at Costco stores, noting that the team is pleasantly surprised by the sustained momentum gained during the pandemic.

He also mentioned that consumers are returning to purchasing discretionary items, signaling a potential shift from the challenges faced during the pandemic.

Special Dividend and Stock Performance

As part of the earnings announcement, Costco declared a special cash dividend of $15 per share, with an aggregate payment amount of $6.7 billion. This marks the company’s fifth special dividend in 11 years and is set to be paid out on Jan. 12.

Following the earnings release, Costco’s shares have surged by 39% year to date, outpacing the S&P 500’s (^GSPC) 23% gain.

Analyst Outlook

Cowen analyst Oliver Chen has named Costco as one of its top picks, emphasizing the strength of the private label brand Kirkland. Conversely, Oppenheimer analyst Rupesh Parikh has removed the retailer from its top pick list due to valuation concerns after significant outperformance in recent times.

Expanding Digital Presence

During the quarter, Costco experienced notable e-commerce sales, including the sale of over $100 million worth of 1 oz. gold bars. Galanti also highlighted the sale of various e-gift cards and unique products on the company’s website.

The company’s mobile app saw significant traction, with 2.75 million downloads during the quarter, bringing its total user base to 30.5 million, reflecting a 10% increase from the previous year.

Leadership Transition

The earnings results coincide with the announcement of CEO Craig Jelinek stepping down from his position, effective Jan. 1, 2024. His successor, Ron Vachris, who has been with the company for more than 40 years, is expected to seamlessly assume the role.

Membership Fees and Potential Increase

Costco is known for its membership fee structure, which is a key revenue stream for the company. While recent figures fell slightly below estimates, there is anticipation in the market for a potential increase in membership fees in the near future, especially as the company typically raises prices every few years.

UBS analyst Michael Lasser has suggested that Costco may initiate a fee hike next summer, given the past timeline of such adjustments and the current economic conditions.

AI legalese decoder Assistance

The AI legalese decoder can assist in deciphering any legal jargon present in Costco’s financial reports, making it easier for investors and analysts to gain a clear understanding of the company’s performance and future prospects.

Overall, despite a few areas of concern, Costco’s strong earnings and business strategies continue to position the company favorably in the market.

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