Costco’s Comparable Store Sales Deliver

Image Source: Costco

By Brian Nelson, CFA

On May 30, Costco (COST) reported solid third quarter results for its fiscal 2024 period ended May 12. Net sales for the quarter increased 9.1% thanks to total company adjusted comparable sales performance of 6.5% and e-commerce growth of 20.7%. Net income for the quarter came in at $1.68 billion, or $3.78 per share, which beat the consensus forecast. Management talked more about the performance on the conference call:

Our average transaction or ticket was up 0.5% worldwide and up 0.7% in the U.S. Foreign currencies relative to the U.S. dollar negatively impacted sales by approximately 20 basis points, while gasoline price inflation positively impacted sales by approximately 30 basis points. Moving down the income statement to membership fee income. We reported membership fee income of $1,123 million, an increase of $79 million or 7.6% year-over-year. Membership fee income growth was 8% excluding FX. In terms of renewal rates, at Q3 end, our U.S. and Canada renewal rate was 93%, up one tenth of a percent from Q2 end. The worldwide rate came in at 90.5%, the same as Q2 end. We ended Q3 with 74.5 million paid household members, up 7.8% versus last year, and 133.9 million card holders, up 7.4% year-over-year.

Costco continues to deliver for customers looking to take advantage of bulk buying and convenience, and the firm’s comparable store sales performance helps to back further expansion of the brand. In its fiscal third quarter, it opened two new warehouses in the U.S. and subsequently opened two more since the end of the quarter. The company has seven buildings in China, and for the remainder of fiscal 2024, it plans to open another 12 new locations, including two in Japan and one in Korea.

ESG Matters

Costco continues to make progress when it comes to ESG considerations. The company is working hard to meet its Scope 1 and 2 direct absolute emissions reduction target of 39% by 2030. “Included in this strategy are smarter operating procedures, lower carbon equipment in (its) warehouses and transportation networks, upgraded LED lighting, and the purchase of clean energy (2023 Highlights).” Costco budgets 1% of its pre-tax profits for select charitable contributions, and in fiscal 2023, that amount was greater than $75 million. It also makes food and non-food donations from its warehouses, accounting for millions of donated meals while keeping “usable goods out of landfills.” The company is working to replace diesel-powered equipment with electric equipment, and new packaging helped to eliminate “14.4 million pounds of plastic in (its) Kirkland Signature and fresh produce packaging.”

Concluding Thoughts

Costco ended its fiscal third quarter with ~$11.5 billion in cash and short-term investments and ~$6.9 billion in short- and long-term debt, good for a nice net cash position. For the 36 weeks ended May 12, cash flow from operations increased to ~$8.38 billion from ~$7.34 in the same period a year ago. Capital spending also increased to ~$3.1 billion from ~$2.77 billion, as the firm continues to invest in the business. We like Costco’s business quite a bit, but shares are trading at quite the lofty earnings multiple (~50 times fiscal 2024 earnings expectations). We’d wait for a meaningful pull back in shares before taking interest in the name.

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