Key Takeaways
- Quarterly earnings per share reached $4.93, falling below the analyst consensus of $4.98, while revenue hit $70.5 billion, surpassing projections
- Comparable store sales increased 6.6%; digital-enabled comparable sales surged 20.4% during the period
- Unprecedented fuel station volumes recorded as quarter closed with national gas prices reaching $4.42 per gallon
- Profit margin contracted from 11.25% to 11.04%, pressured by fresh food pricing and elevated shipping expenses
- Shares have gained approximately 15% in 2024 but experienced a 7%+ decline following May 20
Shares of Costco (COST) climbed 0.3% during Friday’s premarket session following the warehouse club’s release of its fiscal third-quarter financial performance on May 28, which presented investors with a combination of positive and negative metrics.
Costco Wholesale Corporation, COST
The equity had already experienced a decline exceeding 7% beginning May 20, coinciding with earnings announcements from competing retail chains. This prior weakness likely moderated investor response to the profit disappointment.
Costco delivered earnings of $4.93 per share for the period concluded May 10, falling short of Wall Street’s $4.98 projection. Total revenue registered at $70.5 billion, representing an 11.5% year-over-year increase and exceeding the $69.68 billion analyst forecast.
Comparable sales at existing locations advanced 6.6% during the quarter. Membership fee revenue expanded 10.5% versus the previous year, totaling $1.37 billion, although this represented a deceleration from the prior quarter’s 14% expansion.
The number of paying members grew 4.1% for the reporting period. Management highlighted that membership renewal percentages continued at elevated levels.
E-Commerce and Fuel Operations Deliver Strong Performance
Digital-enabled comparable sales jumped 20.4% for the complete quarter. Combined website and mobile application visits increased 37% year over year. Customized online shopping features generated conversion rates triple those of general site metrics, contributing to approximately $5 billion in electronic commerce revenue.
Fuel sales represented another performance highlight. Chief Executive Officer Ron Vachris informed analysts that the organization experienced “record-breaking” gasoline sales volumes as the quarter concluded. National average gasoline pricing reached $4.42 per gallon, increasing 25 cents within a single month and rising from $3.16 twelve months earlier, according to AAA data.
“The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time in the third quarter,” Vachris said.
Chief Financial Officer Gary Millerchip noted that members utilizing fuel facilities demonstrate higher overall purchasing levels and superior renewal percentages.
Profitability Metrics Face Headwinds
Gross profit margin declined from the prior year’s 11.25% to 11.04% in the current quarter. The warehouse operator cited reduced margins on perishable food products including beef and eggs, combined with increased freight and logistics expenses.
Net profit for the three-month period totaled $2.19 billion, representing a 15% year-over-year gain.
The company has submitted applications to the Trump administration seeking tariff reimbursements but clarified that any approved refunds will not enhance corporate profitability. Instead, management intends to transfer cost savings directly to shoppers.
“Our goal is to be the first to lower prices and the last to raise them,” Vachris said on the earnings call.
COST shares currently command a forward price-to-earnings ratio of 48.5, exceeding Walmart’s forward P/E of approximately 41.
Year-to-date performance shows the stock advancing roughly 15%, outpacing the S&P 500 benchmark, with shares establishing fresh all-time peaks earlier in the year prior to the recent correction.
Post-earnings after-hours trading activity remained minimal, with the valuation multiple maintaining its 48.5 forward P/E level amid ongoing gross margin challenges.
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