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Costco announced its earnings results on Thursday, revealing a quarterly performance that fell short on earnings but exceeded revenue expectations for the second quarter, highlighting an increase in comparable sales.
In after-hours trading, Costco’s shares dipped slightly by over 1% following the news.
Comparing the company’s performance to Wall Street projections for the quarter ending on February 16, here are the key figures based on an LSEG analyst survey:
Earnings per share: $4.02 compared to an expectation of $4.11
Revenue: $63.72 billion against an anticipated $63.13 billion
CEO Ron Vachris emphasized that while predicting the effects of tariffs on business is challenging, Costco strives to keep costs stable for its members. Notably, he mentioned that about a third of their U.S. sales stem from imports, less than half of which are sourced from China, Mexico, and Canada.
“In times of uncertainty, our members tend to value high-quality products at competitive prices even more, and our team is committed to meeting this expectation by utilizing our global purchasing power, robust supplier relationships, and focusing on innovation,” Vachris stated.
He added that the grocery sector faces significant margin pressure due to tariff impacts, yet Costco is collaborating with suppliers to alleviate any adverse effects on customers.
This week, President Donald Trump announced a 25% tariff on Mexico and Canada and increased the tariff on China to 20%. However, the White House indicated that goods complying with the United States-Mexico-Canada Agreement would be exempt from these tariffs until April 2. Various retailers, including Target and Best Buy, have cautioned that these tariffs could lead to higher consumer prices.
For the second quarter, Costco’s revenue surged 9% to reach $63.72 billion, up from $58.44 billion in the same quarter of fiscal 2024. Net sales climbed 9.1%, amounting to $62.53 billion, compared to $57.33 billion during the same period the previous year.
The retailer reported membership fees of $1.19 billion for this quarter, marking an increase from $1.11 billion a year prior, with a total of 78.4 million paid memberships and 140.6 million total cardholders. On a global scale, Costco’s membership renewal rate stood at 90.5%, reflecting a slight rise of 0.1% from the last quarter.
In September, Costco increased its annual membership fees in the U.S. and Canada for the first time since 2017. CFO Gary Millerchip noted that this increase had a minimal impact of only 3% on the current quarter’s membership fee income.
Costco’s net income for the second quarter was reported at $1.79 billion, or $4.02 per share, a rise from $1.74 billion, or $3.92 per share, during the second quarter of fiscal 2024.
The company saw a 6.8% year-over-year increase in quarterly comparable sales, surpassing the StreetAccount estimate of 6.4%. In the U.S., comparable sales grew by 8.3%, and e-commerce sales rose significantly by 20.9%.
However, there was a decline in month-to-month comparable sales growth, dipping from 7.5% in January to 6.5% in February. Vachris attributed this to extreme weather in February resulting in some lost sales, although most of this business was successfully recovered.
Shopping traffic showed a year-over-year increase of 5.7%, with a 5.6% increase in the U.S. The company reported that its most robust sales categories included gold and jewelry, furniture, hardware, and toys, all witnessing double-digit growth compared to the previous year, according to Millerchip.
The consumer buying pattern has remained relatively stable over the past several quarters. Millerchip indicated that while members are selective about their purchases, they are likely to become even more discerning if tariffs and inflation continue to rise.
He noted, “Currently, our members are focused on quality, value, and novelty, as they have been for quite a while, but they are still demonstrating a willingness to spend.”
In terms of fresh food sales, Costco experienced growth in the high single digits, with meat sales, in particular, rising by double digits as customers opted for more affordable proteins like ground beef. Overall, spending on groceries at home remained elevated, continuing the trend observed in previous quarters.
The fresh foods segment, particularly meat and bakery items, significantly contributed to Costco’s inflation figures, though overall inflation rates were reported to be in the low single digits.
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