Costco Falls Short of Wall Street’s Revenue Expectations

Despite witnessing a surge in year-over-year sales and robust e-commerce gains, Costco fell short of Wall Street's revenue expectations for the holiday quarter, resulting in a roughly 4% drop in its stock during aftermarket trading on Thursday.

Earlier in the day, the company's stock had reached a 52-week high.

In the three-month period ending February 18, Costco reported a net income of $1.74 billion, or $3.92 per share, up from $1.47 billion, or $3.30 per share, the previous year.

Although the revenue for the quarter increased from $55.27 billion in the same period the previous year, it did not meet analysts' predictions.

Comparable sales for the company exhibited a 5.6% year-over-year increase and a 4.3% rise in the U.S.

When adjusting for gas prices and foreign currency changes, the metric showed an overall increase of 5.8% and 4.8% in the U.S. Chief Financial Officer Richard Galanti highlighted positive trends in various categories, such as mid single-digit growth in food and sundries, high single-digit growth in fresh foods, and mid single-digit growth in non-foods.

Costco experienced increased foot traffic during the quarter, with a global rise of 5.3% and a U.S. increase of 4.3%. The average ticket size also saw growth both in the U.S. and worldwide.

Galanti attributed the ability to reduce prices for some items to flat inflation year over year, citing examples like a reduction in the price of reading glasses and Kirkland Signature batteries.

Despite the miss in revenue expectations, Costco's online sales exhibited substantial growth, increasing by 18.4% compared to the previous year.

The company has made enhancements to its website and digital capabilities, including the launch of a new mobile app homepage and the introduction of Apple Pay.

E-commerce sales momentum has been particularly strong for big-ticket items like appliances, mattresses, and tires.

Galanti also mentioned efforts to crack down on membership sharing, leading to an increase in new sign-ups.

However, he clarified that the impact on Costco's 60 to 70 million members was not significantly meaningful.

While investors have been anticipating a membership fee increase, Galanti confirmed that it is not imminent and joked that the task would fall to his successor, Gary Millerchip, who assumes the role in mid-March.