Costco's stock slips as quarterly sales come up short and fee hike won't immediately lift revenue

By Bill Peters

Retailer also says new membership-card scanners are translating to more signups

Shares of Costco Wholesale Corp. slipped after hours Thursday, after the membership warehouse retailer reported a slip in transactions and quarterly sales trends that came up shy of Wall Street's estimates, following a steady march higher for the stock through this year.

Costco (COST) reported its results as consumer demand for its discounts, bulk items, hot dogs and chicken bakes withstood the pandemic and 2022's inflation surge. And even as a higher-priced world keeps consumers picky, the company raised its membership fees this month, its first hike in seven years.

Wall Street had long wanted Costco to raise its membership fees against that backdrop. But executives on Thursday said that due to deferred accounting, the increase would only have "minimal impact" early in its fiscal 2025, which began this month, with the vast majority of the lift coming later in the fiscal year and fiscal 2026.

Still, Costco began setting up membership-card scanning devices at its stores, following worries that non-members were reaping the benefits. That move, management said, had led to more signups and renewals.

The chain reported fiscal fourth-quarter net income of $2.35 billion, or $5.29 a share, compared with $2.16 billion, or $4.86 a share, in the same quarter last year.

Revenue rose 1% to $78.2 billion, same-store sales rose 5.4% and e-commerce sales were up 18.9% on a year-over-year basis. The company's average transaction fell 0.9% worldwide and 0.3% in the U.S.

Analysts polled by FactSet expected Costco to report earnings per share of $5.08, on revenue of $79.91 billion and a same-store sales gain of 5.7%.

Shares were down 1% in after-hours trading on Thursday. The stock finished regular trading 0.8% lower.

Still, Costco's stock is up 58.5% over the past 12 months, and is up 36.6% year to date, as inflation-fatigued shoppers increasingly gravitate toward the biggest retailers for deals.

Costco executives on Thursday said it had gotten more younger consumers - or those under 40 - to sign up, as it tries to keep prices low. And even as rival grocers try to cut some prices to attract shoppers, across Costco's core merchandise, the company said, inflation was "effectively flat" during the quarter, with food up, and non-food items down.

"It's very clear that quality and value have never been more important," Chief Financial Officer Gary Millerchip said on the company's earnings call.

"I think the encouraging thing for us is as you look at our trends in the year to date, we have seen inflation dissipate, and our members have started to spend more on non-food," he continued.

Gold, jewelry, gift cards and toys were among the items in demand during the quarter. The company said new higher-end beauty products attracted customers. So did discounted food items, like chicken tenderloins, and newer international food items. For items like appliances and electronics, Millerchip said, shoppers were still waiting for deals.

Meanwhile, as the holiday shopping season approaches, worries among businesses have grown over the prospect of an East Coast port strike, as workers and their employers try to nail down a contract by the end of the month. Costco said it had contingency plans in place to work around possible shipping delays, including moving goods to different ports.

"Our buyers are all over it," Chief Executive Ron Vachris said on the call. "They're watching it closely, and we've taken as many pre-emptive measures as we could to prepare for this."

-Bill Peters

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09-26-24 1839ET

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