Costco Beats Q3 Estimates On Higher Comp Sales

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Costco (NASDAQ:COST) reported solid fiscal third quarter results on Thursday, May 25, as both its revenues and earnings came in ahead of consensus estimates.

Key Takeaways From Costco’s Q3 Earnings:

  • Costco’s overall revenue increased 8% year-over-year (y-o-y) to around $29 billion in third quarter, driven by incremental revenues from new stores, growth in membership fees and a 5% increase in comparable sales.
  • During the same period, Costco’s membership revenue grew 4% y-o-y to $644 million, due to sign-ups at existing and increased penetration of the company’s higher-fee Executive Membership program. In addition, executive members represented around 38% of the company’s member base in the quarter. Currently, Costco’s member renewal rates are 90.2% in the U.S. and Canada and 87.5% worldwide.
  • On the e-commerce front, online sales grew 11% y-o-y in this quarter.
  • On the cost side, Costco’s selling, general and administrative (SG&A) expenses increased 6.4% y-o-y to around $3 billion due to increased payroll expenses, higher IT expenditures and growth in e-commerce initiatives.
  • In terms of capital expenditures, the company spent $538 million in this quarter, and close to $1.72 billion year-to-date. Going forward, the company expects the expenditure to be in the range of $2.6-$2.7 billion for the fiscal full year.
  • The company reported net earnings of $1.59 per share, up 28% y-o-y. The Citi Visa co-branded credit card program positively impacted the bottom line by $0.14 a share, while gas profits in the quarter increased y-o-y by $0.05 a share. This quarter’s EPS included a $0.19 per share income tax benefit in connection with the $7 per share special cash dividend that the company declared on April 25th.costeq3171
  • In the third quarter, Costco’s comparable store sales increased by 5%, including the impact of gasoline prices and currency effects, showing solid growth across all geographies. It should be noted that the strengthening dollar and gasoline effects did not have a major impact on the company’s earnings for the quarter, as the company also saw 5% growth on a comparable basis excluding these factors. Further, this 5% reported comparable sales growth was a combination of an average transaction increase of 2% and an average shopping frequency increase of a little over 3%. costeq3173
  • In Q3, the retailer opened 2 new stores, and plans to open a total of 12 more stores in fiscal 2017.

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  • On the categories, hardlines (tires, hardware, health and beauty aids) and softlines (apparel, house wares) grew in mid single-digits, fresh food was up low single-digits, while consumer electronics and tobacco were down in the quarter.
  • Costco did not publish guidance for the current quarter, but consensus estimates for the company’s fiscal fourth quarter call for earnings of $1.98 per share and revenues of $41.04 billion, implying growth of about 12% and 15%, respectively.
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Costco’s membership fee increase will be going into effect from June 1. According to management, the company will hike the price of its Gold Star membership by $5 per year to $60, and raise its Executive membership fee to $120 from $110. In addition, the company reported that the maximum annual 2% reward associated with the Executive membership will increase from $750 to $1,000. The retailer last increased its membership fee in November 2011. Costco reported that 2 million new cards (1.5 million new approved member accounts) have been added since the launch of Citi cards (June 2016).

Have more questions about Costco? Please refer to our complete analysis for Costco

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