The wholesaler isn’t the kind of company that offers much with bad news, and Thursday’s earnings report was no different.
However, Costco (ie: COST ) stock fell 2.6% in after-hours trading Thursday as investors were hoping for more than they got from the retailer’s earnings.
Costco posted net income of $1.87 billion for the quarter, or $4.20 per share, slightly better than analysts’ consensus of $4.17 per share. Sales were $70.8 billion.
That Costco has struck a chord should come as no shock. Between its long history of upbeat earnings and strong monthly sales updates—the last of its kind among major retailers—Costco Wholesale’s ( COST ) quarterly earnings results typically don’t include many surprises. That was also true for the fiscal fourth quarter: We already learned earlier this month that comparable sales for the quarter were in the double digits when it provided the August update.
However, anything that causes the stock to wobble should be considered a boon for investors. While Costco shares were down 13% this year, that’s easily outpacing that
Down 21%, its shares, which have always commanded a market premium, are by no means cheap. They continue to change hands at more than 34 times forward earnings, around their five-year average of 33.
A negative reaction, then, should not be greeted with disappointment. For those who missed out on Costco’s multi-year run or hesitated to add to their position when the stock tanked earlier this year, a chance to get the stock a little cheaper should always be a treat, especially when there are no signs that anything is wrong with the stock. a Costco business.
Buying on the dip has undoubtedly been a profitable bet in the recent past. Costco has climbed more than 205% over the past five years, nearly four times the S&P 500. But what about those who fear that means they missed the boat? There are trends that should bring them comfort.
Recent monthly same-store sales figures show Costco stores are still operating more than 30 percent above where they were before the pandemic, while foot traffic and the amount shoppers spend when they visit have increased. This suggests that the market share gains the company captured during the pandemic are likely to be durable.
Then there’s the fact that “Costco’s membership trends have never been stronger,” as Baird analyst Peter Benedict noted earlier this month — and it could get additional revenue if it enacts a seemingly timely membership fee increase , although this is not something that is expected to happen yet.
The reality is that while high inflation, concerns about the economy and inventory woes are indeed weighing on retail as a whole, Costco is sidestepping many of those concerns. Its August update showed continued resilience in non-food categories, suggesting it doesn’t have an excess of merchandise that its buyers suddenly feel too stuck to buy, not unexpectedly given its relatively affluent customer base.
Lower gas may have helped traffic during the summer price spike, but in fact throughout 2022 through Labor Day, Costco’s traffic was above pre-pandemic levels in 31 of the 36 weeks of the year, according to elements of Placer.ai.
It’s clear that the company’s low-price strategy is resonating. Or as Jefferies analyst Corey Tarlowe previously put it Barron’s“Value retailers like Costco are best positioned, because … when people’s pockets are tight, value wins.”
Investors can too.
Write to Teresa Rivas at firstname.lastname@example.org