Costco Continues To Do It Its Own Way - Costco Wholesale (NASDAQ:COST)

On Tuesday, Costco Wholesale Corporation (NASDAQ:COST) topped quarterly earnings expectation despite a persistent weakness in sales. Like Walmart (NYSE:WMT) and Target (NYSE:TGT), Costco observed weaker trends in discretionary items as it enjoyed strong grocery sales. While Walmart, Target, and Home Depot (NYSE:HD) complained of retail theft pressuring their profit margins and thinning their bottom lines, Costco has its own answer to theft and organized retail crime which is not a big issue for the membership-based warehouse retailer, even without having the scan-and-go technology like the on that the e-commerce titan, Amazon.com Inc (NASDAQ:AMZN) has.

Quarterly Highlights

For the quarter that ended on September 3rd, Costco made $78.9 billion in revenue that rose 9.4%, beating consensus estimates from LSEG’s consensus estimate of $77.9 billion expected. The membership-based warehouse club earned a net income of $2.2 billion, or $4.86 per share, topping expectations of $4.79 and improving from last year’s comparable quarter when it amounted to $1.87 billion, or $4.20 per share. Comparable sales expanded 1.1% YoY, yet only 0.2% in the U.S.

But while Walmart and Target are growing their online sales, Costco’s e-commerce sales contracted 0.9% YoY as consumers pull back on online sales items such as furniture, small electronics and jewelry due to elevated costs of living.

Observed Trends

Shoppers turned to the membership club for groceries but bought fewer big-ticket item. Costco Chief Financial Officer Richard Galanti stated that shoppers came more often but spent less with the result being softer sales of pricier items in the U.S., outside of the food category.

The amount of an average transaction dropped nearly 4% across the globe, while falling 4.5% in the U.S. Global traffic rose 5.2% and 5% YoY in the U.S.

Memberships

Since Covid-19 entered our lives, Costco benefited as Americans cooked more from home and millennials moved to suburban areas which come with bigger pantries. Additionally, inflation made consumers sign up and renew their memberships at Costco, Walmart-owned Sam’s Club and other retail clubs. At the end of the quarter, Costco gathered 71 million paid household members, which translates to almost an 8% YoY rise with 32.3 million paid premium, so-called, executive memberships, also increasing from previous quarter’s 981,000. The premium memberships now make over 45% of paid memberships while contributing to about 73% of total sales. When asked about an increase in membership fee, Galanti replied that it is a question of ‘when’, not ‘if’, but did not specify when that will occur.

Costco Does It In Its Own Way

The bottom line is that Costco continues to post impressive financial figures in a struggling environment without complaining about theft unlike Walmart and Target, stating that inventory shrinkage has not dramatically increased during the past year. Costco’s identity is not made of embracing every trend as it is known for moving carefully. It will not be following all the footsteps of Amazon nor it will be adding express aisles. Costco is aware that inventory shrunk increased due to rollout of self-checkouts that are present at limited locations, but fortunately, shrink rose less than 0.01 percentage point over the past year.

Unlike Amazon, Walmart and Target, people pay to be able to shop at Costco and they do it to take advantage of its pricing. But Costco is also making changes and improving its app, only quietly, but they already resulted in a 46% YoY rise in Costco app installs with unique visitors to the site rising 40% YoY. Although one could never mistake Costco to be Amazon, Costco has never even tried to be the tech-savvy Amazon or even Walmart. Costco, the warehouse club made its own identity and one that is a perfect fit for challenging times like these.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

COSTCostco Wholesale Corp