On December 14th Costco Wholesale Corporation (COST) posted results for Q1 of FY 2024 ending November 26th 2023. The leading club chain serves as a bellwether for omni-channel warehouse in-store and on-line buying. Costco is a barometer of consumer confidence, offering groceries and household necessities in bulk in addition to discretionary appliances, recreational, luxury and electronic items.
The Company beat consensus estimates on both the bottom and top lines by 5.0 and 1.2 percent respectively. For the most recent quarter, the Company earned $1,589 million on revenue (including fuel and membership fees) of $57,799 million with a diluted EPS of $3.58. For the corresponding Q1 of FY 2023 ending November 20th, Costco earned $1,364 million on equivalent revenue of $54,437 million with a diluted EPS of $3.07. Revenue was 6.2 percent higher than in Q1 FY 2023 and net earnings were up by 16.4 percent. Gross margin for Q1 FY 2024 was 11.0 percent, up from 10.6 percent during the corresponding quarter in 2023. Operating income was up 10.6 percent with an operating margin of 3.4 percent compared to 3.2 percent for Q1 FY 2023, despite increased freight, transport, wages and utilities.
Comparable global same-store sales for Q1 2024 (excluding fuel and foreign exchange) attained 3.9 percent. U.S. same store sales were up 2.6 percent; Canada by 8.2 percent and the Other International category, 7.1 percent. E-Commerce was up by 6.1 percent.
CFO Richard Gallanti, on the investors’ call commented on the increase in foot traffic “building on momentum gained during the pandemic” He opined that the 2020 through 2021 COVID period attracted more members and higher purchases per visit as customers wished to make fewer trips to supermarkets. Volumes added in those years have apparently persisted and have increased subsequent to restoration of normal purchase patterns. Gallanti added that consumers have returned to buying discretionary items following some relaxation in interest rates and despite a return to repaying student loans.
Costco did not raise membership fees as expected but in the previous Q4 2023 call, Gallanti commented this is a situation of “when and not if”. There are currently 32.3 million Executive Level memberships at $120 annually representing 45 percent of the total but accounting for 73 percent of sales.
On November 26th Costco posted total assets of $73,723 million. Long-term debt and lease obligations attained $10,808 million. Costco had an intraday market capitalization of $284,940 million on December 14th. COST trades with a forward P/E of 41.4 and has ranged over the past fifty-two weeks from $447.90 to $642.60 with a 50-day moving average of $577.84. Costco closed pre-release at $630.78 on December 14th but rose in after-hours trading, post-release by 8.0 percent to $638.76. Twelve-month trailing operating margin was 3.5 percent and profit margin 2.6 percent. The Company generated a return on assets of 8.0 percent and 27.5 percent on equity.
At the end of the recent completed quarter, Costco operated 871 warehouses. There are 600 in the U.S; 108 in Canada; 40 in Mexico; 33 in Japan; 29 in the U.K. and 61others in seven other nations among the E.U., Asia and Australia. This was a net increase of ten warehouses during Q1 with nine added in the U.S.