Costco reported earnings last week that surpassed Wall Street predictions, primarily driven by a surge in grocery sales despite declining high-value item purchases. CFO Richard Galanti revealed that while shopper visits to Costco increased, average spending per visit decreased, attributed to weaker sales of non-food items in the U.S. and the impact of reduced gas prices on overall revenue. Globally, foot traffic increased by 5.2% year-over-year, with a 5% rise in the U.S., while the average transaction amount declined by nearly 4% globally and 4.5% in the U.S.
The fiscal fourth quarter saw Costco’s net income rise to $2.2 billion, or $4.86 per share, compared to $1.87 billion, or $4.20 per share, in the previous year. Comparable sales for the company increased by 1.1% year over year, with a mere 0.2% growth in the U.S. Excluding gas price changes, the metric rose by 3.8% overall and 3.1% in the U.S.
In the past three years, Costco experienced substantial growth due to increased home cooking and millennials moving to larger suburban homes during the pandemic. Inflation also drove shoppers to sign up and renew memberships at warehouse clubs. Costco ended the quarter with 71 million paid household members, an almost 8% increase from the previous year, outpacing the rate of new store openings, which increased by just under 3%.
Costco also encouraged more members to opt for its higher-tier Executive Membership, priced at $120 annually, offering additional perks. By quarter-end, Costco had 32.3 million paid executive memberships, an increase of 981,000 from the previous quarter, constituting over 45% of all paid memberships and accounting for about 73% of global sales.
Despite elevated grocery bills and housing costs causing consumers to cut back on big-ticket and discretionary items, impacting Costco’s digital sales, some discretionary items like appliances surged by over 30% year over year in the quarter. Furthermore, groceries continued to be the primary sales driver at Costco, prompting the introduction of small-ticket items and an early launch of Christmas items.
In the U.S., sales trends slowed down, with comparable sales roughly flat in the past two quarters. Investors anticipated a membership fee increase, which has not yet occurred. The last fee hike was in June 2017, and according to typical practice, another was due in early 2023. Galanti confirmed that a fee increase is a matter of “when, not if.”
Costco plans to open ten new stores in the next three months after adding 23 new locations in the fiscal year. The company’s stock has performed well, with a 21% increase so far this year, outpacing the S&P 500’s 11% gains. On Tuesday, the stock closed at $552.96, down about 1%.
