At a time when stocks are crashing and investors are running for cover, Costco revenues have offered a glimmer of hope. Costco membership revenue hit $984 million in new membership fees in the third quarter, beating industry estimates.
Costco’s third-quarter earnings were largely in line with Wall Street forecasts as the retailer used cheaper members-only gasoline sales to bring in customers.
On May 26, Costco announced its results for the third quarter and the first 36 weeks of 2022, which ended on May 8.
Net income for the quarter was $1.353 billion, or $3.04 per diluted share.
Net sales for the quarter increased by 16.3% rising up to $51.61 billion in comparison to $44.38 billion last year, beating the Costco sales forecast. Analysts had expected that sales would reach $51.52 billion. Costco’s comparable sales grew 14.9% year-on-year, which is promising.
Net sales for the first 36 weeks increased 16.4%, to $151.97 billion, from $130.61 billion last year.
On the earnings call, Bob Nelson, senior vice president for finance and investor relations, told stakeholders that “pressures from higher commodity prices, higher wages, higher transportation costs, and supply chain disruptions are still in play.” He also revealed that candy, sundries, tires, toys, jewelry, kiosks, home furnishings, apparel, bakery, and deli were the best performing categories in Q3 impacting Costco revenues. Underperforming departments included liquor, office, sporting goods, and hardware, all of which performed quite well last year.
Nelson admitted that gasoline, travel, food courts, and business centers performed exceptionally well, adding to the overall profits. The retailer hit an all-time high when it came to renewal rates. In both the US and Canada, Costco membership revenues were up by 92.3%. As of Q3, Costco has 64.4 million paid households and 116.6 million cardholders. A Costco membership costs approximately $60 for a year. For an additional $60, they can upgrade it to an executive membership. Nelson also addressed the speculation around an increase in Costco membership revenue as costs are expected to increase this year. He mentioned that membership fee increases usually happen in a 5.5-year time frame and that the last increase happened in 2017. The company will make official announcements if and when they decide to change the current membership cost.
Pre-tax income for the quarter came up to 11%, coming in at $1.827 billion, and that compares to $1.65 billion, last year.
Costco revenue growth is expected to continue, although high inflation and rising costs have forced giants like Walmart, Amazon, and Target to slash growth forecasts after disappointing Q1 results. Record high gas prices and inflation have eaten into household budgets as people struggle to make do.
Costco revenues are telling of its wide customer base. Marshal Cohen, chief industry analyst for market research firm NPD Group, recently told CNBC that “the warehouse retailer famously does not spend any money on advertising, but word of mouth can cultivate brand affinity among different communities.”
In Thursday’s session, Costco shares were up by 5.65% but were marked lower by 1.7% in after-hours trading after the earnings release.
The S&P 500 Retailing Group is down by nearly 23.67% this quarter, its worst performance since 1990. However, investors expect things to worsen as Feds’ rate-based inflation fight and rising gas prices will continue to impact household budgets and discretionary spending. Meanwhile, the Commerce Department indicated that retail sales in the US stabilized slightly in April.
Costco will announce the results for May sales on June 2, after market close. Nelson also thanked Costco employees and partners for their dedication during this “most challenging environment” and mentioned that their hard work is evident in the strong operating results.
