Wholesale isn’t the kind of business that brings a lot of bad news, and Thursday’s earnings report was no different.
Still, Costco stock (ticker: COST) fell 2.6% in after-hours trading Thursday as investors hoped for more than they got from the retailers’ earnings.
Costco posted net income of $1.87 billion for the quarter, or $4.20 per share, slightly ahead of analyst consensus at $4.17 per share. Sales were $70.8 billion.
That Costco made a beat shouldn’t be shocking. Between its long history of positive earnings and strong monthly sales updates — the latest of their kind among major retailers — Costco Wholesale’s (COST) quarterly results typically don’t hold many surprises. So was the fiscal fourth quarter, where we learned earlier this month that the quarter’s comparable store sales were up double-digit when it released the August update.
But anything that causes a surge in the stock should be considered a gift to investors. While Costco shares were down 13% this year, that handily beats the
Dropping 21%, his shares, which have always had a premium on the market, are by no means cheap. They are still switching hands at more than 34 times future earnings, around their five-year average of 33.
A negative reaction should therefore not be greeted with dismay. For those who missed Costco’s multi-year run, or are hesitant to add their position when the stock fell earlier this year, a chance to get the stock a little cheaper should always be a treat, especially if there’s no sign of anything going wrong. is wrong with Costco’s business.
Buying on the dip has undoubtedly been a profitable bet in the recent past. Costco is up more than 205% in the past five years, nearly four times the S&P 500. But what about those who fear they’ve missed the boat? There are trends that should comfort them.
Recent monthly same-store sales figures show Costco’s compositions are still more than 30% higher than where they were prepandemic, while traffic and the amount shoppers spend when they visit have increased. That indicates that the market share gains the company has captured during the pandemic are likely to be sustainable.
Then there’s the fact that “Costco’s membership trends have never been stronger,” as Baird analyst Peter Benedict noted earlier this month — and it could bring in additional revenue if it implemented a seemingly timely increase in membership fees, though it won’t. something that is expected to happen yet.
The reality is that, while high inflation, concerns about the price movement of the economy and inventory problems are indeed weighing on the retail industry as a whole, Costco sidesteps many of those concerns. The August update showed continued resilience in non-food categories, suggesting it has no glut of merchandise that its customers suddenly feel too tight to buy, not unexpected given its relatively affluent customer base.
The discounted gas may have helped traffic during the summer price spike, but in fact, traffic from Costco was above prepandemic levels throughout 2022 through Labor Day in 31 of the 36 weeks of the year, according to data from Placer.ai.
It’s clear that the company’s low-price strategy is resonating. Or as Jefferies analyst Corey Tarlowe previously said: Barron’s“value retailers like Costco are best positioned because…when people’s pockets are pinched, value wins.”
Investors can too.
Write to Teresa Rivas at [email protected]