Costco investors shrug at revenue miss as stock holds support

Costco Wholesale (COST) reported its fiscal fourth-quarter earnings, posting earnings per share (EPS) of $5.29, which surpassed analyst expectations of $5.08. However, revenue came in slightly below expectations at $79.7 billion, just shy of the consensus estimate of $79.9 billion. The company saw a 1% increase in net sales compared to the same period last year. Key metrics for the quarter included a 5.4% increase in same-store sales, slightly below the expected 5.7%, and an impressive 18.9% growth in e-commerce sales, reflecting strong online demand.

In the U.S., Costco's comparable store sales excluding gas and foreign exchange impacts grew by 6.3%, beating expectations of 5.96%. International performance was also strong, contributing to the overall 5.4% increase in total company comparable sales. The company’s fresh department and health and beauty categories performed well, with pharmacy achieving double-digit growth. Notably, Costco’s non-food categories continued to excel, supported by the "treasure hunt" model and the introduction of premium products like Kirkland Signature items, which saw significant growth.

During the earnings call, Costco's management provided insights into their contingency plans in light of the potential U.S. port strike. CEO Ron Vachris mentioned that Costco had pre-shipped holiday goods and considered alternate shipping routes to mitigate potential disruptions. Despite the challenges posed by global supply chain issues, Costco remains confident in its ability to manage these risks effectively.

Top-performing products in the quarter included Kirkland Signature boneless chicken tenderloins, which saw a 21% lift in pounds sold due to a 13% price reduction. The grocery sector also benefited from the introduction of more international products and popular Kirkland Signature offerings such as golden maple syrup and aerosol whipped cream. These items contributed to Costco's strong performance, particularly in the non-food category, which had the highest comparable sales growth in Q4.

Costco’s management also emphasized the success of their e-commerce strategy, highlighting the revamp of their website and improvements in delivery times. The company's recent membership fee increase, effective September 1, did not impact the Q4 results but will be closely watched in the coming quarters to gauge its effect on subscriber growth and revenue. The fee hike, which raised individual membership costs from $60 to $65 and executive membership fees from $120 to $130, is expected to bolster Costco’s already strong membership income.

The company has been proactive in addressing potential risks associated with the looming port strike, which could disrupt the supply of key goods such as bananas, meat, and prescription drugs. By clearing ports and pre-shipping goods, Costco aims to mitigate any negative impact on its operations during the critical holiday season.

In terms of stock performance, Costco's shares initially dipped by 0.7% in after-hours trading following the earnings release, despite the solid EPS beat. This muted reaction can be attributed to the slight revenue miss and the high expectations set by the company's strong comparable sales growth in prior months. Overall, while the revenue miss may have tempered investor enthusiasm, Costco’s consistent performance and strategic initiatives continue to position it favorably in the retail sector.