Costco (NASDAQ:COST) Surpasses Q4 Expectations – Stock Story

Membership-only discount retailer Costco recently reported its Q4 FY2023 results, surpassing Wall Street analysts’ expectations with revenue soaring by 9.5% year-over-year to $78.9 billion. In terms of earnings per share (EPS), Costco reported a GAAP profit of $4.86, an increase from $4.20 per share in the same quarter last year.

Costco (COST) Q4 FY2023 Highlights:

• Revenue: $78.9 billion vs analyst estimates of $78 billion (1.25% beat)
• EPS: $4.86 vs analyst estimates of $4.78 (1.76% beat)
• Gross Margin (GAAP): 12.3%, up from 11.8% year over year
• Same-Store Sales: Increased by 3.8% year-on-year (slightly below expectations of 3.9%)
• Store Locations: Total of 861, with an increase of 23 locations over the past year

Costco operates as a one-stop shop for suburban consumers, offering a range of products including groceries, apparel, toys, and household items in bulk quantities.

As a large-format retailer, Costco leverages its scale and purchasing power to provide competitive pricing. Despite the rising threat of e-commerce, big-box retailers like Costco have maintained resilience by enhancing the in-store shopping experience and investing in omnichannel strategies.

Sales Growth
Costco has established itself as a leader in the consumer retail sector, benefiting significantly from its economies of scale, which enhance its distribution efficiency and negotiating leverage with suppliers. Over the past four years, Costco reported an impressive annualized revenue growth rate of 12.2%, normalizing for the impacts of COVID-19, reflecting its successful expansion of both new and existing store sales.

In the recent quarter, Costco achieved year-on-year revenue growth of 9.5%, outperforming analysts’ estimates by 1.25%. Analysts predict sales to grow by 4.91% in the next year.

Number of Stores
The growth in Costco’s store count signifies an expanding demand. The retailer added 23 locations, bringing the total to 861 in the latest quarter. This growth reflects a broader trend, with Costco averaging 2.69% annual increases in its physical footprint, consistent with the general sector trends. The combination of new store openings and increased demand allows for revenue growth from various sources, such as sales from new locations, online sales, and higher customer spending in existing stores.

Same-Store Sales
Costco has generally seen an increase in demand within existing stores over the last two years, though it has fallen slightly behind the overall retail sector. The average same-store sales growth has been around 8.42% year-on-year. In the latest quarter, Costco’s same-store sales rose by 3.8%, a notable decline from the 10.4% increase from the previous year. While this slight dip is not concerning for long-term growth, it will be essential to monitor how Costco plans to regain momentum.

Key Takeaways from Costco’s Q4 Results
With a market capitalization of $248 billion and a cash balance of $15.2 billion, Costco is well-positioned to pursue a high-growth strategy. The company’s ability to exceed analysts’ expectations in terms of revenue and EPS is a positive sign, even if the growth in same-store sales slightly missed projections. Overall, the quarter was satisfactory without major surprises, although investors may have hoped for stronger performance, as indicated by a 1.67% drop in share price, bringing it to $544.25.

The author does not hold any positions in the stocks discussed.