by Costco (COST) posted fiscal second quarter results Thursday, March 2, after a market close that largely beat expectations. Shares fell more than 2% after the release.
As consumers sought value and moved away from discretionary spending, the wholesaler saw a slight miss in quarterly revenue, which came in at $55.27 billion, but was up 6.5% from a year ago. Meanwhile, net sales increased 6.5% to $54.24 billion compared to $50.04 billion.
Here’s what Costco reported, compared to Wall Street estimates, based on consensus data from Bloomberg:
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Gain: $55.27 billion versus $55.58 billion expected
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Adjusted earnings per share: $3.30 versus $3.21 expected
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Sale in the same store: 6.8% up versus up 6.16% expected
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United States: an increase of 5.8% versus an expected increase of 5.56%
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Canada: an increase of 9.6% against an expected increase of 5.51%
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Other international: 9.5% against an expected increase of 7.10%
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“People are spending their dollars where they feel they should be spending them,” CEO Craig Jelinek said on a phone call with investors. The retailer saw an increase in sales in fresh food, food and miscellaneous categories and “weakness in big-ticket discretionary items” with declines in non-food items such as apparel, jewelry and electronics. This is similar to the latest earnings results from Target (TGT) and Walmart (WMT).
In the US, 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 estimated, up 9.6% and 9.5% respectively.
Last quarter, e-commerce sales fell 9.6%.
Looking ahead to the first few weeks of Q3 FY 23, in the first four weeks of February, US sales were up 3.4% and Canada 1.2%. For its international activities, sales increased by 6.5%. E-commerce sales fell by -11.2% in the month of February. Last month, the company posted net sales of $17.06 billion, up 4.7% from $16.29 billion last year.
The private label business, Kirkland Brands, is also getting a boost from inflation. In recent months, the company saw “a larger delta than usual” for Kirkland Brands. For the second quarter, the company saw an increase of about 1.5% in Kirkland Brands sales, particularly food penetration, compared to about 0.5% normal. Jelinek jokingly called it a “trade-up”, adding: “People want to save money, and it’s our brand, which is great, it creates loyalty.”
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Increase contribution?
Speaking to investors, Jelinek reiterated, similar to previous quarters, “It’s a matter of when, not if,” it will raise prices. He then referred to the typical timeline of dues increases, which is every 5 years and seven months, bringing the next potential increase to… now.
Costco last raised prices in June 2017.
Jelinek remains convinced that the wholesaler will stay on top, saying: “Our relative competitiveness is stronger than ever before.”
This quarter, membership dues brought in $1.03 billion, up 6.2% from a year ago and a tick above Wall Street’s $1.04 billion estimates.
Stifel, which has a Buy rating on the stock, expects “more clarity in the next six months or so,” but that could be delayed due to the current macro environment. “It’s possible that a weaker consumer environment and strong comparable store sales and renewal rates could slow an increase from historical timing.”
A Costco Gold Star membership costs $60 per year and an Executive membership costs $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 the annual fee from $45 to $50 for Club members and to $110 from $100 for Plus members.
At BJ’s, the basic membership costs $55 per year and the membership with additional rewards 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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