Wholesale is not the type of company that delivers a lot of bad news and Thursday’s earnings report it was no different.
Still, shares of Costco (ticker: COST ) fell 2.6% in after-hours trading Thursday as investors hoped for more than they got from the retailer’s earnings.
Costco reported net income of $1.87 billion for the quarter, or $4.20 per share, slightly better than analysts’ consensus of $4.17 per share. Sales were $70.8 billion.
That Costco has been successful should come as no shock. Between a long history of upbeat earnings and solid monthly sales updates — the last of their kind among major retailers — Costco Wholesale’s ( COST ) quarterly results typically don’t include many surprises. That was also true for its fiscal fourth quarter: We already learned earlier this month that comparable sales for the quarter were up double-digits when it provided its August update.
Still, anything that causes a stock to fluctuate should be considered a gift to investors. Although Costco’s stock has fallen 13% this year, it’s slightly outperformed
Down 21%, its shares, which have always commanded a market premium, are by no means cheap. They still trade at more than 34 times forward earnings, around their five-year average of 33.
Therefore, a negative reaction should not be met with horror. For those who missed out on Costco’s multi-year performance or were hesitant to add to their position when the stock fell earlier this year, the chance to get the stock a little cheaper should always be a treat, especially when there are no signs that anything is wrong. is fine with Costco’s business.
Buying the dip has undoubtedly been a profitable bet in the recent past. Costco has climbed more than 205% over the past five years, nearly four times the S&P 500. But what about those who fear that means they’ve missed the boat? There are trends that should give them comfort.
The latest monthly same-store sales figures show that Costco’s competitors are still operating more than 30 percent above their pre-pandemic levels, while traffic and the amount shoppers spend when they visit are increasing. This indicates that the market share gains the company seized during the pandemic are likely to be permanent.
Then there’s the fact that Costco’s “membership trends have never been stronger,” as Baird analyst Peter Benedict noted earlier this month — and it could get additional revenue if it implements a seemingly timely membership fee increase. although this is not something that is expected to happen just yet.
The reality is that while high inflation, concerns about the trajectory of the economy and inventory issues do weigh on retail as a whole, Costco circumvents many of these concerns. Its August update showed continued resilience in non-food categories, suggesting there is no glut of goods for shoppers to suddenly feel too pressured to buy, which is not unexpected given its relatively affluent customer base.
Its discounted gas may have helped traffic during the summer price spike, but in fact, throughout 2022 through Labor Day, Costco’s traffic was above pre-pandemic levels in 31 of the 36 weeks of the year, according to data from Placer .ai.
Clearly, the company’s low-price strategy is resonating. Or as Jefferies analyst Corey Tarlow said earlier Barron’s“value retailers like Costco are best positioned because … when people’s pockets are pinched, value wins.”
Investors can too.
Write to Teresa Rivas c [email protected]