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Costco Q4 earnings top estimates as high gas prices fuel foot traffic

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Costco’s (COST) fourth quarter results beat estimates on both the top and bottom lines as cheap gas prices likely won over inflation-weary consumers.

For the fiscal fourth quarter, Costco reported adjusted earnings per share of $4.86, higher than Wall Street expectations of $4.78. Revenue also came in higher at $78.94 billion, compared to expectations of $77.72 billion, per Bloomberg data.

The company’s latest earnings, which were reported Tuesday after market close, come as major headwinds like higher gas prices, student loan repayments, and higher interest rates, among others, take a toll on Americans’ wallets.

Same-store sales, including gas and foreign exchange, came in slightly lower than anticipated — up 1.1% compared to estimates of 1.87%. Excluding gas and FX, sales jumped 3.8%, slightly below expectations for 3.92%.

“For F4Q23, we remind investors that Costco’s gas business likely faces a difficult prior year comparison on fuel margins,” Raymond James analysts wrote in a note ahead of the results. “Recall, national gas fuel margins (per OPIS) saw sizable y/y expansion last year during the summer months as oil prices were dropping (OPIS national margins were up 60% y/y during Costco’s F4Q22).”

Gas prices spiked over the summer compared to earlier in 2023, making Costco’s cheap fuel attractive for customers. As of Tuesday, the national average gas price stood at $3.84 per gallon, per AAA, slightly off the 2023 high.

As consumers flock to Costco to fill up their tanks, they also tend to shop in stores.

Placer.ai data showed that, compared to last year, visits to Costco were up 3% in August, 4.5% in July, and 3.6% in June. Meanwhile, overall visits to wholesale clubs and superstores dropped 1.9% in August and 0.4% in June and July.

“Disinflation continues in Food/Sundry … while gas price deflation (only -2%) is worth tracking – particularly given August’s surge,” Evercore ISI analyst Greg Melich wrote in an Aug. 31 note. “Further appreciation in fuel prices could provide an additional traffic, comp and share tailwind to further highlight the loyalty model.”

The earnings rundown:

Here’s what Costco reported in its fiscal fourth quarter versus Wall Street estimates, according to Bloomberg data:

  • Net sales: $77.43 billion versus $77.6 billion expected

  • Adjusted EPS: $4.86 versus $4.78 expected

  • Same-store sales growth: 1.1% versus 1.87% expected

  • E-commerce sales growth: -0.8% versus 5% expected

  • Inventory growth: -7.01% versus 7.31% expected

Costco stock fell 1.4% in after-hours trading on Tuesday following the results. Shares are up 21% year to date.

What else we’re watching: Costco membership fees

Membership fees, a key revenue stream for the wholesale retailer, came in at $1.51 billion, higher than Wall Street expectations for $1.46 billion. In the third quarter, the company brought in $1.04 billion in membership fee revenue.

While no plans were shared yet to increase prices this quarter, investors will be watching closely to see if Costco announces any plans to raise membership fees in the near future, as the company typically raises prices every five years and seven months on average.

Costco last raised membership prices in June 2017, and a Costco Gold Star membership costs $60 per year, while an Executive Membership goes for $120.

“We’ve been anticipating [a membership fee increase] for a while now,” CFRA analyst Arun Sundaram told Yahoo Finance Live, adding he expects the price hike to be between $5 to $10. “They’re really waiting for inflation to moderate before they decide to raise fees. But now we are starting to see inflation moderate. … I think we could see a membership fee increase announced by the end of this year.”

Last quarter, the company delayed hiking fees. During the Q3 earnings call, CFO Richard Galanti told UBS analyst Michael Lasser that Costco feels “very good” that it could increase membership fees “without impacting, in any meaningful way, renewal rates or sign-ups or anything.”

“And at some point, we will,” Galanti added. “But our view right now is that we’ve got enough leverage out there to drive business, and we feel that it’s incumbent upon us to be that beacon of light to our members in terms of holding them for right now.”

An unsold 2023 Jeep Gladiator pickup truck sits on display outside a Costco warehouse.

An unsold 2023 Jeep Gladiator pickup truck sits on display outside a Costco warehouse on Wednesday, Sept. 13, 2023, in Sheridan, Colo. (David Zalubowski/AP Photo)

What Wall Street is saying ahead of earnings:

“Costco’s value proposition continues to shine as the U.S. core comp accelerated to +4.5% in July … led by the best traffic growth since July 2022. The sequential acceleration was driven by fresh foods as performance in food and sundries and non-food was steady.

“Another positive in the month was e-commerce, which returned to YOY growth after nine months of declines, marking a 760 bps sequential improvement in 2YR growth, and likely indicating healthier big-ticket trends. Macro uncertainties remain, but COST is one of the most consistent operators in our coverage, and should continue to be a share gainer given its value proposition.” -Krisztina Katai, Deutsche Bank

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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