Costco (NYSE: COST) shares were flat following the company's fiscal Q4 earnings report which showed it exceeding analysts' estimates on the top and bottom line. Shares were under pressure after hours and in the ensuing session as the company declined to hike membership fees, however, these losses were recovered this week.
Overall, Costco shares have slightly outperformed against the S&P 500 (NYSE: SPY) with a 15% YTD loss vs a 24% YTD loss for the S&P 500. Historically, Costco tends to outperform during periods of inflation and adverse economic conditions as shoppers prioritize buying in bulk. However, the company has seen an increase in the purchase of lower-margin items, while higher-margin sales have been weak, a potentially worrisome sign about the health of the consumer.
Inside the Numbers
In its fiscal Q4, Costco reported earnings per share of $4.20 which was slightly better than estimates of $4.17 per share. Revenue also edged out estimates at $72.1 billion vs $72.0 billion. Revenue was 14% higher compared to last year, while EPS was up 28%.
The company also noted another increase in membership and continued upgrades to the executive level membership which now comprises 44% of the total. Gross margins were lower due to inflation driving up costs. However, the company continues to maintain its $1.50 price tag for its hot dog and soda combination.
Investors and Wall Street were disappointed by the retailer deciding not to hike its membership fees. Normally, Costco raises its fees about every 5 years which would put the timeline for the next increase in January 2023. However, some were expecting a quicker increase due to inflationary pressures and rival Sam's Club increasing its fees in August.
Currently, a Costco membership costs $60 annually or $120 for the executive-level membership. Famously, most of Costco's profits come from membership fees, while it invests revenue from products into strengthening its supply chain, keeping costs low, and giving employees above-average wages and benefits.
Costco's share prices are essentially flat over the past year, yet earnings and revenue are up by a decent margin. This has resulted in valuations getting more attractive. Currently, it has a forward P/E of 29 which is close to historical lows. For long-term investors, this could prove to be a good entry point.