Costco Wholesale Corp (COST) Q3 2024 Earnings Call Transcript Highlights: Strong Growth in Net ...
Net Income: $1.68 billion, or $3.78 per diluted share, up from $1.3 billion and $2.93 per diluted share in the third quarter last year.
Net Sales: $57.39 billion, an increase of 9.1% from $52.6 billion in the third quarter last year.
Comparable Sales: Total company comp sales of 6.6% or 6.5% adjusted for gas inflation and FX.
E-commerce Comp Sales: 20.7%, both on a reported basis and adjusted for foreign exchange.
Membership Fee Income: $1,123 million, an increase of $79 million or 7.6% year over year.
Gross Margin Rate: 10.84%, higher by 52 basis points year over year.
SG&A Rate: 8.96%, lower by 15 basis points year over year.
Interest Expense: $41 million this year versus $36 million last year.
Tax Rate: 26.4% compared to 26.5% in Q3 last year.
Warehouse Expansion: Opened two new warehouses in Q3, with plans to open another 12 new locations by the end of fiscal '24.
Capital Expenditures: Q3 spend was approximately $1.06 billion, with full year '24 estimated between $4.3 billion and $4.5 billion.
Paid Household Members: 74.5 million, up 7.8% versus last year.
Executive Memberships: 34.5 million, an increase of 661,000 since Q2-end.
App Downloads: Up 32% versus a year ago, with about 2.5 million new downloads in the quarter.
Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Costco Wholesale Corp (NASDAQ:COST) reported a significant increase in net income for the third quarter, reaching $1.68 billion, or $3.78 per diluted share, up from $1.3 billion and $2.93 per diluted share in the same quarter last year.
Net sales for the third quarter were $57.39 billion, an increase of 9.1% from $52.6 billion in the third quarter last year.
Membership fee income grew by 7.6% year over year, reaching $1,123 million, with a US and Canada renewal rate of 93%.
E-commerce comp sales saw a substantial increase of 20.7%, both on a reported basis and adjusted for foreign exchange.
Costco Wholesale Corp (NASDAQ:COST) continues to expand its warehouse footprint, with plans to open 30 new locations in fiscal '24, including international markets like Japan and Korea.
Negative Points
Foreign currencies relative to the US dollar negatively impacted sales by approximately 20 basis points.
Gasoline price inflation only positively impacted sales by approximately 30 basis points, indicating limited benefit from this factor.
Gross margin for ancillary and other businesses was lower by 6 basis points year over year, driven by gas, partially offset by e-commerce.
Interest expense increased to $41 million this year from $36 million last year.
Despite the overall positive performance, the profitability in gas was down, creating a headwind in the ancillary businesses segment.
Q & A Highlights
Costco Wholesale Corp (NASDAQ:COST) Q3 2024 Earnings Call Highlights
Q: Can you provide an update on the potential for a membership fee increase? A: Gary Millerchip, CFO: We are still evaluating the timing for a membership fee increase. Historically, we have increased fees every five years, and we are beyond that typical cycle now. We feel good about our membership renewal rates and the value we deliver to members. It remains a case of when, not if, we will increase the fee.
Q: How do you view the runway for US expansion? A: Gary Millerchip, CFO: We still see significant runway for new warehouses in the US. This year, we are opening close to 29 net new warehouses, many of which are in the US. We believe 25 to 30 new warehouse openings annually is a reasonable target, with at least half of those in the US.
Q: Do you need to make sizable price investments to remain competitive? A: Roland Vachris, CEO: No, being competitive on pricing is part of our everyday DNA. Our buyers are on top of pricing daily, and we review them each month. We feel very good about our current competitive position and our ability to maintain it.
Q: Are there any plans to be more aggressive with technology and data initiatives? A: Roland Vachris, CEO: Yes, we are working on expanding buy online, pickup in warehouse, and improving technology to enhance member engagement. We also see great potential in retail media and data monetization, and we have expanded our team to capitalize on these opportunities.
Q: Will you adhere to the 14% to 15% margin ceiling? A: Roland Vachris, CEO: Yes, we will adhere to the 14% to 15% margin ceiling. Our objective is to deliver the best value to our members, and we have no plans to move that cap.
Q: What are your thoughts on digital e-commerce strengths and weaknesses? A: Roland Vachris, CEO: Our strengths lie in merchandise and value. We are focused on better fulfillment, quicker delivery times, and improving site reliability. Personalization and better correlation of warehouse and online inventory are key opportunities for us.
Q: Are you seeing better discretionary spending from members? A: Roland Vachris, CEO: Yes, we are seeing better discretionary spending, particularly in categories like home, toys, and sporting goods. This is driven by new and exciting merchandise at great values.
Q: How do you view the opportunity for vertical sourcing? A: Roland Vachris, CEO: We engage in vertical sourcing when necessary to meet demand and maintain value, such as with our meat and optical plants. We will continue to strategically use vertical integration where it makes sense.
Q: What is the rationale behind selling Instacart gift cards at a discount? A: Roland Vachris, CEO: The strategy is to bring value to our members by enhancing the grocery delivery service. We work with partners like Instacart and Uber to keep costs low and provide additional value to our members.
Q: How do you manage the impact of in-fill warehouse openings on existing locations? A: Gary Millerchip, CFO: We use member data to plan for cannibalization and adjust labor, payroll, and buying accordingly. Our team is usually very accurate in predicting the impact, and we strategically open in-fill locations to improve member frequency and engagement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.