Americans are more cautious in their spending: Middle class loves Costco. Last quarter's profit exceeded expectations but revenue fell short, dropping more than 1% after hours | Financial Report Insights

The favorite of the American middle class - Costco, the largest membership-based warehousing supermarket in China, has mixed performance. Profit growth has slowed but still stronger than expected, while revenue growth has slowed more than expected. Although customer traffic has increased, supporting profit growth, customers are more cautious in their spending, affecting revenue.

After the US market closed on Thursday, September 26, Costco announced the financial data for the fourth quarter of the 2024 fiscal year ending September 1, 2024.

1) Key Financial Data:

Revenue: Revenue in the fourth quarter was approximately $79.70 billion, an increase of nearly 1% year-on-year, with analysts expecting $79.96 billion, and a nearly 9.1% year-on-year increase in the previous quarter.

EPS: Diluted earnings per share (EPS) was $5.29, an 8.8% year-on-year increase, with analysts expecting $5.07, and a 29% year-on-year increase in the previous quarter.

Same-Store Sales: Including the impact of gasoline prices and foreign exchange, same-store sales in the fourth quarter increased by 5.4%, with analysts expecting an increase of 4.27%, compared to a 6.6% increase in the previous quarter; excluding these impacts, same-store sales in the fourth quarter increased by 6.9%, compared to a 6.5% increase in the previous quarter.

2) Segment Data:

Net Sales: Net sales in the fourth quarter were approximately $78.20 billion, an increase of nearly 1% year-on-year, compared to an 8.9% increase in the previous quarter.

Membership Fees: Membership fees in the fourth quarter were $1.512 billion, a 0.2% year-on-year increase, compared to a 7.6% increase in the previous quarter.

E-commerce: E-commerce sales in the fourth quarter increased by 18.9%, compared to a 20.7% increase in the previous quarter.

After the financial report was released, Costco's stock price fell nearly 0.8% on Thursday and accelerated its decline after hours, with a post-market decline of over 1%.

Slower-than-expected Revenue Growth in the Fourth Quarter, Increase in Customer Traffic but Decrease in Spending

The financial report shows that Costco's revenue and profit in the fourth quarter both slowed compared to the previous quarter. However, the slowdown in EPS profitability was not as severe as analysts expected, while the revenue slowdown exceeded expectations, dropping from over 9% growth to less than 1%, compared to analysts' expected slowdown of 1.3%.

In the fourth quarter, same-store sales growth in all markets for Costco slowed compared to the previous quarter. In the main market of the United States, same-store sales growth in the fourth quarter slowed from 6.6% in the previous quarter to 5.3%, while in Canada and other international markets outside the US, same-store sales growth in the fourth quarter was below 6%.

Same-store sales data shows that customer traffic increased year-on-year in the fourth quarter, while the amount spent by customers decreased. In the United States, customer traffic in the fourth quarter increased by 5.6%, while spending decreased by 0.3%. In Canada and other international markets, customer traffic increased by 7.7% and 8.1% respectively, while spending decreased by 2.1% and 2.2% respectively Overall, Costco's same-store customer traffic increased by 6.4% in the fourth quarter, while customer spending decreased by 0.9%.

Commentary suggests that Costco's higher-than-expected profits reflect strong consumer spending in the face of cost pressures. Historical records show that Costco's performance is not affected by macroeconomic challenges, as shopping at Costco requires a membership fee, attracting wealthier consumers.

Some comments also point out that Costco's lower-than-expected revenue in the fourth quarter is due to cautious consumer spending and the impact of falling gasoline prices.

Renewal Rate of U.S. and Canada Members Nearly 93% for the First Time in Seven Years Before the First Membership Fee Increase

In July of this year, Costco announced its first membership fee increase since June 2017, raising the fee by $5 to $65 in the U.S. and Canada starting from September 1. Last year, Costco generated $4.6 billion in revenue from membership fees. Analysts are paying attention to this price hike by Costco, hoping to understand its impact on the company's revenue.

The latest financial report shows that Costco had 76.2 million paid members in the fourth quarter, a 7.3% year-on-year increase; the global renewal rate was 90.5%, with a renewal rate of 92.9% in the U.S. and Canada.

Comments suggest that it may take several months to see the impact of the membership fee increase on renewal rates or membership registrations.

According to the financial report, Costco currently operates 891 stores globally, including 614 in the U.S. and Puerto Rico, 108 in Canada, 35 in Japan, 7 in mainland China, and 14 in Taiwan.