money Costco Q2 earnings: Stock slips after mixed results
Costco (COST) posted fiscal second-quarter earnings results Thursday, March 2, after market close that mostly beat expectations. Shares were down more than 2% after the release.
As consumers sought out value and moved away from discretionary spending, the wholesale retailer saw a slight miss in quarterly revenue, coming in at $55.27 billion, but up 6.5% from a year ago. Meanwhile net sales saw a 6.5% increase, to $54.24 billion, up from $50.04 billion.
Here's what Costco reported, compared to Wall Street estimates, based on Bloomberg consensus data:
Revenue: $55.27 billion versus $55.58 billion expected
Adjusted earnings per share: $3.30 versus $3.21 expected
Same-store sales: up 6.8% versus up 6.16% expected
United States: up 5.8% versus up 5.56% expected
Canada: up 9.6% versus up 5.51% expected
Other international: 9.5% versus up 7.10% expected
"People are spending their dollars where they feel they should be spending them," Costco CFO Richard Galanti said on a call with investors. The retailer saw an increase in sales in the fresh food, food, and sundry categories and "weakness in big ticket discretionary items" with a drop in non-food items such as apparel, jewelry and electronics. This is similar to results from Target (TGT) and Walmart's (WMT) latest earnings.
In the U.S., sales came in slightly lower than expected, up 5.8% compared to estimates of 5.56%. Meanwhile, in Canada and internationally, Costco saw strength with same-store sales, both higher than estimates, up 9.6% and 9.5%, respectively.
Last quarter, e-commerce sales were down 9.6%.
Giving an outlook into the first few weeks of Q3 FY 23, in the first four weeks of February, U.S. sales are up 3.4% and up 1.2% in Canada. For its international business, sales are up 6.5%. E-commerce sales saw a decline of -11.2% in the month of February. Last month, the company saw net sales of $17.06 billion, up 4.7% from $16.29 billion last year.
Its private label business, Kirkland Brands, is also getting a boost from inflation. In the last few months, the company saw "a bigger delta than normal" to Kirkland Brands. For Q2, the company saw a roughly 1.5% increase in sales of Kirkland Brands, specifically food penetration, compared to roughly 0.5% typically. Galanti jokingly called it a "trade-up," adding, "People are looking to save money, and it's our brand, that's great, creates loyalty."
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Membership fee increase?
In the call with investors, Galanti reiterated, similar to previous quarters, "It's a question of when, not-if," it will raise prices. He then referred to its typical time line of membership fee increases, which is every 5 years and seven months, bringing the next potential hike to ... now.
Costco last raised prices in June 2017.
Galanti remains confident that the wholesale retailer remains on top, saying, "Our relative level of competitiveness is as strong as it's ever been."
This quarter, membership fees brought in $1.03 billion, up 6.2% from a year ago and a tick higher than Wall Street estimates of $1.04 billion.
Stifel, which holds a Buy rating on the stock, expects "greater clarity over the next approximately six months," however, that may be delayed due to the current macro environment. "It is possible a weaker consumer environment and strong comparable store sales and renewal rates could delay an increase relative to historical timing."
A Costco Gold Star membership costs $60 per year and an Executive Membership goes for $120.
That's compared to Sam’s Club, owned by Walmart (WMT), which raised prices in August for the first time since 1999. That move increased annual fees to $50 from $45 for Club members and to $110 from $100 for Plus members.
At BJ's, the basic membership costs $55 per a year and its perk rewards membership is $110.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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