Costco’s Fourth Quarter Results Beat Estimates as Cheap Gas Prices Drive Consumer Spending
Costco Wholesale Corporation (COST) announced better-than-expected fourth quarter results, surpassing estimates on both the top and bottom lines. The discount retailer’s earnings were bolstered by the appeal of cheap gas prices to consumers weary of rising inflation.
For the fiscal fourth quarter, Costco reported adjusted earnings per share of $4.86, exceeding Wall Street expectations of $4.78. Revenue also came in higher at $78.94 billion, compared to estimates of $77.72 billion. These results, released on Tuesday after market close, come at a time when factors such as higher gas prices, student loan repayments, and rising interest rates are straining Americans’ finances.
While same-store sales, including gas and foreign exchange, were slightly lower than anticipated with a 1.1% increase compared to estimates of 1.87%, sales excluding gas and FX saw a robust 3.8% jump, albeit slightly below the forecasted 3.92%.
Analysts from Raymond James noted that Costco’s gas business is anticipated to face challenges due to difficult year-on-year comparisons in fuel margins. Last year, during the summer months when oil prices were dropping, national gas fuel margins saw a substantial year-on-year expansion. Despite this, gas prices surged over the summer in comparison to earlier in 2023, making Costco’s affordable fuel a draw for customers. As a result, visits to Costco stores saw an uptick, according to Placer.ai data.
Greg Melich, an analyst at Evercore ISI, highlighted the potential impact of fuel price appreciation on Costco’s traffic, sales, and market share, noting the benefits of the company’s loyalty model.
In terms of membership fees, Costco generated $1.51 billion in the fourth quarter, surpassing Wall Street expectations of $1.46 billion. The company typically raises membership fees every five years and seven months on average, and while no immediate plans have been announced, investors are closely monitoring whether Costco will disclose any upcoming fee increases. The last price hike occurred in June 2017, with a Costco Gold Star membership priced at $60 per year and an Executive Membership at $120.
While these strong earnings prompted a minimal 1.4% decline in Costco’s stock during after-hours trading on Tuesday, shares have risen by 21% year to date.
Analysts at Deutsche Bank reiterated Costco’s value proposition, highlighting the company’s consistent performance and potential for market share gains. They emphasized the acceleration of the company’s core comparable sales in July as well as the positive improvement in e-commerce trends.
As Costco continues to navigate the current economic landscape, investors will be watching closely to see if the company announces a membership fee increase by the end of the year, while also keeping an eye on factors such as fuel prices and consumer spending habits.
Brooke DiPalma