Costco Wholesale ( COST ) reported mixed first-quarter results after Thursday’s closing bell amid weak consumer demand. But the Club continues to see business fundamentals as solid and is encouraged by the retailer’s expected membership fee increase and special dividend. Total revenue, which includes revenue from membership fees, rose 8% year over year to $54.44 billion, slightly below analysts’ consensus estimate of $54.64 billion, according to Refinitiv. Comparable sales in e-commerce decreased 3.7% year-over-year, or 2% on an adjusted basis. Comparable sales for the overall company were up 6.6% year-over-year, or 7.2% on an adjusted basis. Earnings per share rose 3% year-over-year to $3.07, missing analysts’ estimates of $3.11 per share. Results were partially attenuated by single items. Since about 25% to 30% of Costco’s profits are generated outside the United States, the strong U.S. dollar also contributed to the decline in earnings. Bottom line Costco’s numbers were slightly below expectations, but Club holdings aren’t being penalized right now, with shares down just 0.27% in late Thursday trading. Still, the stock endured a tough December, falling nearly 11% on weaker-than-expected comparable monthly sales for November — news that likely primed the market to miss today’s gains. More importantly, the long-term direction of the business remains strong with positive catalyst events on the horizon, including membership fee increases and a special dividend. We are encouraged by apparent record e-commerce sales for Black Friday and Cyber Monday, according to management. Those days were not included in Costco’s fiscal first quarter, which ended Nov. 20. Nevertheless, given short-term concerns that the decline in sales in November could signal a larger trend, we locked in some gains at a higher price late last week. Membership statistics Revenue from membership fees is a closely watched metric from which Costco earns most of its profits. Revenue from membership fees rose 5.7% year over year to $1 billion, slightly missing estimates of $1.01 billion. Foreign currency had a negative impact of 32 million dollars. Costco ended the quarter with 66.9 million paying family members and 120.9 million cardholders. Both are up 7% year-on-year. Renewal rates in the US and Canada were 92.5% compared to 92.4% a quarter ago. The renewal rate worldwide was 90.4% compared to the previous quarter. Margins Reported gross margin decreased 45 basis points year over year and 21 basis points excluding gas inflation. Core product margins declined 52 basis points on a reported basis and 31 basis points excluding gas inflation. On an underlying basis, offset by declines in non-food and fresh food margins, overall gross margin decreased 31 basis points, while food and miscellaneous products increased slightly. Subsidiary and other business margins increased 23 basis points on a reported basis, 30 basis points excluding gas inflation. Gas business centers and travel were up year-over-year, while e-commerce, food courts and optics were down. Elsewhere, margins reported a “2% premium” down 2 basis points on a reported basis and 5 basis points excluding gas inflation, implying higher sales influence from executives. LIFO — last-in, first-out — margins rose 3 basis points on a reported basis and 3 basis points excluding gas. Costco still had a very small LIFO charge of less than $1 million this quarter, but that was down from the $14 million recorded in last year’s first quarter. Other margins — a catch-all bucket — fell 17 basis points on the report and 18 basis points excluding gas inflation. Other items Costco opened 7 new net warehouses in the quarter and plans to open 24 net stores this fiscal year. Costco is seeing prices fall mostly on commodities, including cornmeal, sugar, oil and steel. Potential Catalysts When asked about plans to raise membership fees, CFO Richard Galanti reiterated that the current timing is still not at the average of the last three increases. Costco has historically raised membership fees every 5 years and 7 months, with the next anniversary in January 2023. The company has the pricing power to raise fees if it wants to, and it’s when, not when. , situation. If the situation is Costco’s next special dividend. The company has paid a special dividend 4 times in the last 8 years, the last one was in November 2020. With about $11 billion in cash and cash equivalents on the balance sheet, Costco has plenty of room to reward shareholders again. (Jim Cramer’s Charitable Trust is long EXPENSES. See here for a full list of stocks.) As a subscriber to the CNBC Investment Club with Jim Cramer, you’ll receive trade alerts before Jim trades. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. NO FIDUCIARY ENTITY OR DUTIES ARE OR WILL BE CREATED BY YOUR ACCEPTANCE OF INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO RESULTS OR PROFITS ARE GUARANTEED.
Costco Wholesale (COST) reported mixed first-quarter results after Thursday’s closing bell amid weak consumer demand. But the Club continues to see business fundamentals as solid and is encouraged by the retailer’s expected membership fee increase and special dividend.