Costco stock falls on fourth-quarter earnings;  Hot dog, membership fee safe

Costco stock falls on fourth-quarter earnings; Hot dog, membership fee safe

Updated at 10:13AM EST

Costco Wholesale (cost) Stocks fell on Friday after the wholesale retailer posted better-than-expected fourth-quarter earnings but noted pressure on profit margins amid rising inflation costs and shifting consumer habits.

Costco said its diluted earnings for the three months ended August 28, the fiscal fourth quarter, rose 11.7% from a year ago to $4.20 a share, beating Street expectations by about 4 cents a share.

Total revenue rose 15% to $72.091 billion, ahead of analysts’ expectations of $72.07 billion, with membership revenue up 7.5% to $1.327 billion. Costco said same-store sales rose 13.7% globally and 15.8% in the United States, with e-commerce sales up 7.1%.

Costco noted that gross margins shrank about 80 basis points to 10.18%, while total inventories were up 26% from a year ago, with some modest improvement over “only the past few weeks.”

The group also said it was seeing signs of easing inflation pressures and noted that sales of the season “appear to be going well”.

“In terms of membership fees and a potential increase, there are no specific plans regarding a fee increase at this time,” Chief Financial Officer Richard Galanti told investors on a conference call late Thursday. β€œWe are pleased with the growth we have had in both top-line sales and membership in households over the past several quarters and in member loyalty as reflected in increased member renewal rates.

“We’ll let you know when something is about to happen,” he added, noting that higher-margin companies like gasoline sales and travel services “help us be more aggressive in other areas (and) hold the price of hot dogs for a little longer, forever” .

Costco shares were down 1.9 percent in early trading Friday to trade at $477.58 per share, a move that would extend the stock’s six-month decline to about 14 percent.

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Lower gas prices may explain why revenue was modestly ahead of expectations, with pumping costs down more than 20% from a high of $5.10 a gallon in early June to the end of Costco’s fourth quarter, while core inflation eased from 1% in May. . to 0.1% in August.

DA Davidson analyst Michael Baker, who maintained his “neutral” rating after last night’s earnings, raised his price target from $5 to $445 per share.

“But we believe that valuing Costco’s premium requires greater profit and profit and better gross margin trends,” he added. And as such, we wouldn’t be surprised to see some pressure on the stock.

Earlier this week, Target Corp., a major retail competitor (TGT) It unveiled plans to hire 100,000 employees to support holiday sales efforts, adding that it plans to offer seasonal discounts early as it continues to monitor inventory levels after an unwanted backlog earlier this year, a plan that contrasts with only 40,000 planned seasonal additions at rival Walmart. (WMT) .

Deloitte’s holiday retail sales forecast, published earlier this month, suggests total holiday purchases will rise between 4% and 6% from last year to about $1.46 trillion, a marked slowdown from the 15% gain recorded over the same period. in 2021.

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