Costco ( COST ) posted another sizeable quarter as consumers look for wallet-friendly prices on their everyday needs.
On Thursday afternoon, the company reported net sales of $58.52 billion, compared to estimates of $57.98 billion. Adjusted earnings of $3.78 also beat estimates of $3.70.
“We are definitely winning in consumables, because we see the food business and eating away from home has softened up a bit,” CEO Ron Vachris, who stepped into the role in January, said in a call with investors.
Same-store sales, excluding fuel, rose 6.5%, led by increased international business (8.5%), Canada (7.4%), and the US (6%).
This is happening because consumers are looking for value for money on groceries. In April, wholesale prices rose 1.1% from a year ago but fell 0.2% from March, according to the US Bureau of Labor Statistics.
As inflation moderated, consumers returned to discretionary items “led by toys, tires, lawn and garden, and health and beauty aids,” CFO Gary Millerchip said on the phone.
In the quarter, the wholesale retailer saw year-over-year foot traffic, beating Sam’s Club ( WMT ) and BJ’s Wholesale Club ( BJ ), according to Placer.ai.
Vachris said Costco doesn’t have to implement deep price cuts like Target and Walmart to compete for customers.
“The buyers (for the company) are on top of the price every day, every week, and we all check every month and so we feel very good about it now and the runway to continue to be competitive as we go forward,” he said.
Costco is slashing prices on some items in its private label brands, such as Kirkland Signature pine nuts and Kirkland Signature frozen shrimp skewers.
E-commerce was another bright spot with a 20.7% jump, which Millerchip said was “led by gold and silver, gift cards, and appliances.” New app downloads rose 32% to 35 million.
The company is also developing a partnership with Uber Grocery in the US and Canada.
The logistics business recorded a 28% year-on-year increase in deliveries. The delivery business competes with Best Buy ( BBY ) and offers items like televisions, computers, appliances, tires, and even mattresses.
Costco is piloting offering its warehouse inventory online, but Vachris said the company wants to preserve the in-store experience.
Membership fees, a key revenue stream, came in line with estimates at $1.12 billion, an increase of 7.6% compared to last year. A Costco Gold Star Membership costs $60 per year, while an Executive Membership costs $120. Some on the Street predicted last year that Costco would raise costs this summer.
In Q3, the company had 74.5 million paid members, with 34.5 million executive members.
When analysts asked whether they would raise fees, Millerchip said “it’s still small when we increase fees, rather than if we increase fees.”
Offering an advertising solution could be an opportunity, given Costco’s access to member data. Walmart’s US retail media business, Walmart Connect, saw sales growth of 26% in its latest quarterly results.
Costco shares are up 25% year to date, outpacing the S&P 500’s (^GSPC) 10% gain, and closed at a record high before reporting fiscal Q3 results.
“We continue to believe that the premium valuation is warranted, given Costco’s superior global unit growth prospects, superior competitive position, and track record of gaining market share,” Oppenheimer analyst Rupesh Parikh wrote in a note to clients ahead of the report, adding that “management can unlock greater shareholder value over time through driving alternative revenue streams.”
JPMorgan analyst Christopher Horvers wrote that the company’s stock continues to benefit from a higher revenue customer base, along with a long history of consistent market share gains.
Earnings rundown:
Here’s what Costco delivered in its fiscal third quarter earnings, compared to Wall Street estimates:
Net sales: $58.52 billion versus $57.98 billion
Adjusted EPS: $3.78 versus $3.70
The company’s total comparable sales, excluding fuel: 6.5%, compared to 5.93%
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US same-store sales growth: 6% versus 5.51%
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Same-store sales growth in Canada: 7.4% versus 6.96%
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Other international: 8.5% versus 7.46%
Development of e-commerce: 20.7% versus 11.5%
Membership fees: $1.12 billion versus $1.12 billion
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow him on Twitter at @BrookeDiPalma or email him at bdipalma@yahoofinance.com.
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