Membership-only discount retailer Costco (NASDAQ:COST) reported results in line with analysts' expectations in Q1 FY2024, with revenue up 6.2% year on year to $57.8 billion. It made a GAAP profit of $3.58 per share, improving from its profit of $3.07 per share in the same quarter last year.
Key Takeaways from Costco's Q1 Results
Despite slightly missing same-store sales expectations on a consolidated basis and in the US specifically, Costco managed to beat revenue expectations by a small margin. Slightly better profits led to a more convincing EPS beat. No guidance was given in the earnings release. Overall, we think this was a fine quarter with no major surprises. Investors were likely expecting more, especially on the same-store sales lines, however, and the stock is down 1.5% after reporting, trading at $621.99 per share.
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Costco (COST) Q1 FY2024 Highlights:
- Market Capitalization: $284.9 billion
- Revenue: $57.8 billion vs analyst estimates of $57.79 billion (small beat)
- EPS: $3.58 vs analyst estimates of $3.42 (4.8% beat)
- Free Cash Flow of $3.61 billion, up 133% from the same quarter last year
- Gross Margin (GAAP): 12.7%, up from 12.2% in the same quarter last year
- Same-Store Sales were up 3.9% year on year (slight miss vs. expectations of up 4.0% year on year; US same-store sales also missed slightly)
- Store Locations: 871 at quarter end, increasing by 24 over the last 12 months
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Large-format Grocery & General Merchandise Retailer
Big-box retailers operate large stores that sell groceries and general merchandise at highly competitive prices. Because of their scale and resulting purchasing power, these big-box retailers–with annual sales in the tens to hundreds of billions of dollars–are able to get attractive volume discounts and sell at often the lowest prices. While e-commerce is a threat, these retailers have been able to weather the storm by either providing a unique in-store shopping experience or by reinvesting their hefty profits into omnichannel investments.
Sales Growth
Costco is a behemoth in the consumer retail sector and benefits from economies of scale, an important advantage giving the business an edge in distribution and more negotiating power with suppliers.
As you can see below, the company's annualized revenue growth rate of 12.3% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new stores and grew sales at existing, established stores.
This quarter, Costco grew its revenue by 6.2% year on year, and its $57.8 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4.8% over the next 12 months, a deceleration from this quarter.
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Number of Stores
When a retailer like Costco is opening new stores, it usually means it's investing for growth because demand is greater than supply. Costco's store count increased by 24 locations, or 2.8%, over the last 12 months to 871 total retail locations in the most recently reported quarter.
Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 2.7% annual growth in its physical footprint. This is decent store growth and in line with other retailers. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.
Same-Store Sales
Costco's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 7.7% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Costco is reaching more customers and growing sales.
In the latest quarter, Costco's same-store sales rose 3.9% year on year. This growth was a deceleration from the 7.1% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
So should you invest in Costco right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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