Costco (COST, Financial) has been a favorite among investors, with its stock price increasing by 18% year-to-date, reaching all-time highs just before the release of its Q2 earnings report. Despite high expectations due to a successful holiday shopping season, the company's earnings surpassed EPS expectations for the fifth consecutive quarter and reported a solid adjusted comp growth of +5.8%. However, it fell short on net sales, leading to a profit-taking pullback.
Key points from Costco's Q2 earnings include:
- Unexpected net sales miss, despite strong December comparable sales growth of 8.1% across various categories, including jewelry, gift cards, and tires.
- eCommerce comparable sales saw a significant increase of 18.2%, with appliances and one ounce gold bars sales being particularly strong.
- Disinflation in gasoline prices and a shift in Costco's fiscal calendar due to a 53-week year for FY23 were factors in the net sales miss.
- Impressive growth in paid household members by 7.8% to 73.4 million and a slight increase in the worldwide renewal rate to 90.5% indicate Costco's continued market share gain.
- Despite expectations, Costco's CFO Richard Galanti, who is set to depart on March 15, confirmed no immediate plans to raise membership fees, leaving the decision to incoming CFO Gary Millerchip, formerly of Kroger (KR, Financial).
The main takeaway from Costco's Q2 earnings is that despite the stock's significant rally at the start of 2024, the top-line miss was a catalyst for a profit-taking pullback. Nevertheless, Costco's business remains robust, supported by strong membership growth, indicating a positive outlook for the future.
