Costco (COST) reported another quarterly earnings report with strong sales growth as consumers look for affordable prices on everyday essentials.
The company reported net sales of $58.52 billion on Thursday afternoon, beating expectations of $57.98 billion. Adjusted earnings were $3.78, beating the $3.70 forecast.
“We're certainly winning in the consumer goods space as the food business and dining out have softened a little bit,” Ron Bakris, who became CEO in January, said on a conference call with investors.
Same-store sales excluding fuel increased 6.5 percent due to continued growth in international operations (up 8.5 percent), Canada (up 7.4 percent) and the United States (up 6 percent).
That's because consumers are looking for value in their groceries: Grocery prices rose 1.1% year-over-year in April, but were down 0.2% from March, according to the U.S. Bureau of Labor Statistics.
As inflation eases, consumers are returning to discretionary items, led by “toys, tires, lawn and garden equipment and health and beauty products,” Chief Financial Officer Gary Millerchip said on a conference call.
According to Placer.ai, the wholesale retailer saw year-over-year foot traffic growth this quarter, outperforming stores like Sam's Club (WMT) and BJ's Wholesale Club (BJ's).
Vakris said Costco doesn't need to cut prices as broadly as Target and Walmart to compete for customers.
“Buyer [for the company] “We manage our pricing on a daily and weekly basis and review it monthly so we feel very comfortable with where we are and our outlook for remaining competitive going forward,” he said.
Costco has lowered prices on some of its private-brand products, including Kirkland Signature pine nuts and Kirkland Signature frozen shrimp skewers.
E-commerce also saw strong growth, up 20.7%, “led by gold and silver bullion, gift cards and consumer electronics,” Miller Chip said. New app downloads increased 32% to 35 million.
The company also expanded its partnership with Uber Grocery in the United States and Canada.
The company's logistics business, which competes with Best Buy (BBY) and offers products like TVs, computers, appliances, tires, and even mattresses, saw delivery volume grow 28% year over year.
Costco is beginning to test offering warehouse inventory online, but Vakris said the company plans to maintain the in-store experience.
Membership fees, Costco's main source of revenue, came in as expected at $1.12 billion, up 7.6% from 2017. Costco's Gold Star membership costs $60 a year, while its Executive membership costs $120. Some street speculators expected Costco to raise membership fees this summer.
In the third quarter, the company had 74.5 million total paid subscribers, including 34.5 million executive subscribers.
When asked by analysts whether it would increase fees, Miller Chip replied, “It's still a question of when, not if.”
Offering advertising solutions could be an opportunity for Costco, given its access to member data. Walmart's U.S. retail media business, Walmart Connect, saw sales increase 26% in its most recent quarterly results.
Costco shares have risen 25% year to date, outperforming the S&P 500's (^GSPC) 10% gain, and closed at a record high ahead of the company's third-quarter earnings report. In early trading Friday after the earnings release, shares were down nearly 2%.
“We continue to believe that a premium valuation is justified given Costco's superior global growth prospects, leading competitive advantages and track record of share gains,” Oppenheimer analyst Rupesh Parikh wrote in a client note ahead of the report, adding that “management is well positioned to further enhance shareholder value over the long term through advancing alternative revenue streams.”
JPMorgan analyst Christopher Horvers wrote that the company's stock continues to benefit from its high-income customer base and consistent market share gains over the years.
Revenue Breakdown:
Here's how Costco's third-quarter earnings report stacked up against Wall Street expectations:
Net Sales: $58.52 billion vs. $57.98 billion
Adjusted EPS: $3.78 vs $3.70
Comparative company-wide sales excluding fuel: 6.5%, compared to 5.93%
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U.S. same-store sales growth: 6% vs. 5.51%
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Canadian same-store sales growth: 7.4% vs. 6.96%
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Other international: 8.5% vs. 7.46%
Growth of e-commerce: 20.7% vs. 11.5%
Fees: $1.12 billion vs. $1.12 billion
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter.Brooke DiPalma Or email me at bdipalma@yahoofinance.com
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