Costco’s Latest Q1 FY2025 Earnings: What Investors Should Know

TradingKey - It’s no secret that the US economy is driven by consumer spending. Unsurprisingly, the US stock market has a whole host of consumer-related companies listed on its various exchanges.

One of the largest retail firms out there is Costco Wholesale Corporation (NASDAQ: COST), a warehouse club retailer that’s renowned for selling low-cost but quality, bulky products – from electronics to groceries.

The company has also been a consistent compounder for shareholders with its shares up over 235% over the past five years, easily outperforming the S&P 500 Index’s return of 91% over the same period. Investors got a chance to see how the business was performing when Costco reported its latest Q1 FY2025 earnings – for the 12 weeks ended 24 November 2024 – after the marked closed on Thursday (12 December).

Costco actually regularly releases its monthly sales numbers so coming into the earnings release, there weren’t too many surprises to prepare for. Nevertheless, here are some key takeaways for investors from Costco’s latest Q1 FY2025 results.  

Revenue and EPS come in ahead of expectations

For the quarter, Costco posted total revenue of US$62.15 billion, coming in slightly ahead of market expectations for US$62.08 billion. Meanwhile, earnings per share (EPS) for the company was US$4.04 during the period, ahead of consensus expectations for US$3.79.

Membership fee revenue came in at US$1.17 billion, up 8% year-on-year, and was the first period for Costco post-the membership fee increase in September. That saw the company raise its annual membership fee for the first time in seven years for its US members.

Total comparable store sales rose 5.2% year-on-year during the period but, excluding the impact of gasoline prices and foreign exchange, they rose by 7.1% year-on-year – robust growth figures given the size of Costco’s business.

E-commerce robust, spending continues to be strong

For the quarter, Costco continued to see strength in its e-commerce operations which, according to many observers, is still in its early phases of growth. E-commerce sales for Costco rose 13% year-on-year during the reported period and the company is gaining market shares by shipping big and bulky items, according to CEO Ron Vachris.

During the quarter, Costco hit nearly 1 million deliveries – a new record. Meanwhile, online traffic, conversions, and average order value all increased on a year-on-year basis.

On the company’s earnings call, CFO Gary Millerchip said that customers have remained selective but shown that they’re still willing to spend if they witness a “combination of newness of items, quality and value”.

Clearly, Costco is offering that combination in spades for shoppers with unique goods being offered by the retailer, such as gold bars and its Kirkland Signature stable of items. Over the quarter, sales from gold and jewellery, gift cards, home furnishings, sporting goods, health and beauty aids, and luggage kiosk and hardware were all up by double-digit percentages year-on-year.

CFO Millerchip did note that Costco’s strong sales of meat and fresh produce suggest that shoppers are dining out less and cooking more at home. That could suggest a US consumer that is looking to save more money and focus on value – perfect for Costco’s business.

Looking to quality growth

Costco’s business continues to perform at a high level and membership renewal rates were still above 90%. In the latest period, membership renewal rates worldwide were 90.4%, slightly down from a year ago when it was 92.8% but some of that attrition that could be down to the recent annual price hike. 

As the company continues to invest heavily into its e-commerce operations, investors should see Costco’s e-commerce operation continue to grow faster than the overall business.

While shares are not cheap – trading at a forward price-to-earnings (PE) ratio of 54x, versus Walmart Inc’s (NYSE: WMT) 35x – it’s still considered a best-in-class retailer that investors are willing to pay up for.

So far in 2024, Costco shares have risen by around 52%, easily outperforming the 27.6% advance of the S&P 500 Index.