Costco Wholesale (COST) reported mixed first-quarter fiscal results after the closing bell on Thursday amid weaker consumer demand. But the Club continues to see the fundamentals of the business as strong and is encouraged by the planned rise in membership fees and the bulk retailer’s special dividend. Total revenue, which includes dues revenue, rose 8% year-over-year to $54.44 billion, slightly below analysts’ consensus estimate of $54.64 billion. dollars, according to Refinitiv. Comparable e-commerce sales fell 3.7% year-on-year, or 2% on an adjusted basis. For the company as a whole, comparable sales increased 6.6% year-over-year, or 7.2% on an adjusted basis. Earnings per share rose 3% year over year to $3.07 per share, missing analysts’ forecast of $3.11 per share. The results were partly weighed down by specific elements. And with about 25% to 30% of Costco’s earnings generated outside the United States, the strength of the U.S. dollar also weighed on earnings. Bottom line, Costco’s numbers were slightly below expectations, but the Club’s stake is not penalized at this time, with shares down just 0.27% in after-hours trading Thursday night. . Still, the stock has weathered a tough December so far, down nearly 11% on weaker-than-expected monthly comparable sales for November — news that likely set the market up for failure. profits today. More importantly, the company’s long-term focus remains strong with positive catalyst events on the horizon, including a likely increase in membership fees and a special dividend. And we’re encouraged by the apparent record e-commerce sales for Black Friday and Cyber Monday, according to management. Those days were not included in Costco’s first fiscal quarter, which ended Nov. 20. Nonetheless, we locked in some gains at a higher price late last week, given short-term concerns that November’s slowdown in selling could signal a broader trend. Membership Statistics Revenue from membership fees is a closely tracked metric from which Costco derives the majority of its profits. Revenue from dues rose 5.7% year-over-year to $1 billion, slightly beating estimates of $1.01 billion. Foreign exchange had a negative impact of $32 million. Costco ended its quarter with 66.9 million paying household members and 120.9 million cardholders. Both are up 7% year over year. Renewal rates in the United States and Canada were 92.5%, compared to 92.4% a quarter ago. The global renewal rate was 90.4%, in line with the previous quarter. Margins Reported gross margins fell 45 basis points year over year and 21 basis points excluding gas inflation. Basic commodity margins fell 52 basis points on a reported basis and 31 basis points excluding gas inflation. Core-to-core gross margin fell 31 basis points, with a slight increase in food and miscellaneous, offset by lower non-food and fresh food margins. Margins from ancillary and other activities increased by 23 basis points on a reported basis and by 30 basis points excluding gas inflation. Gas and travel business centers were up year-over-year, while e-commerce, food courts and optics were down. Elsewhere, the “2% Reward” saw margins down 2 basis points on a reported basis and 5 basis points excluding gas inflation, implying higher sales penetration from executive members. LIFO – last in, first out – margins increased 3 basis points on a reported basis and 3 basis points excluding gas. Costco still had a very small LIFO charge this quarter of less than $1 million, but it was lower than the $14 million charge in the first quarter of last year. Other margins – a catch-all bucket – fell 17 basis points on a reported basis and 18 basis points excluding gas inflation. Other Items Costco opened 7 net new warehouses during the quarter and expects to open 24 net stores this fiscal year. Costco sees commodity prices falling primarily, including cornmeal, sugar, butter and steel. Potential catalysts Asked about plans to increase dues, Chief Financial Officer Richard Galanti again stressed that the current schedule is still not on par with the last three increases. Costco historically increases its membership fees every 5 years and 7 months, the next anniversary of which will be in January 2023. The company has the power to set prices to raise fees if it chooses, and the timing is a moment, not if, situation. Another when, not if, situation is Costco’s upcoming special dividend. The company has paid a special dividend 4 times in the last 8 years, the last in November 2020. With nearly $11 billion in cash and cash equivalents on the balance sheet, Costco has plenty of capacity to once again reward the shareholders. (Jim Cramer’s Charitable Trust is long COST. See here for a full stock list.) 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Wholesale Costco (COST) reported mixed first-quarter fiscal results after the closing bell Thursday, amid weaker consumer demand. But the Club continues to see the fundamentals of the business as strong and is encouraged by the planned rise in membership fees and the bulk retailer’s special dividend.
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