ii view: Costco beats forecasts despite tariff turmoil

Third-quarter results to 11 May  

• Total revenues up 8% to $63.2 billion
• Adjusted comparable sales up 8% year over year
• Adjusted earnings up 13% to $4.28 per share
• Dividend of $1.30 per share, up from the prior quarter’s $1.16 per share 

ii round-up:

Costco Wholesale Corp (NASDAQ:COST) has detailed sales and profits that beat Wall Street forecasts, with the members-only warehouse retailer rushing supply shipments ahead of US tariffs and rerouting goods from countries with higher tariffs to non-US markets.

Total third-quarter revenues to mid-May rose 8% to $63.2 billion, driving adjusted earnings up 13% to $4.28 per share. Analysts had expected outcomes of $63.1 billion and $4.24 per share respectively. Membership income climbed by a tenth to $1.24 billion as worried consumers potentially moved to take advantage of the retailer’s discounted prices ahead of trade tariff introductions.

Shares in the S&P 500 retailer drifted marginally lower in post results trading having come into this latest news up by close to a quarter over the last year. That’s comfortably ahead of a 13% gain for the S&P 500 index itself. Fellow value focused Walmart Inc (NYSE:WMT) has soared by almost a half over that time. 

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Costco operates 905 warehouses globally including 624 in the USA, 109 in Canada, 41 in Mexico, 37 in Japan and 29 across the UK. 

Adjusted group-wide same store, or like-for-like sales rose 8% from a year ago, marginally down from the 9.1% gain seen in the prior second quarter. 

E-commerce related sales also remained buoyant, improving 15.7% from a year ago, although down from the second quarter’s 22.2% increase. 

An overall gross profit margin of 11.25% rose 0.4% from a year ago, beating Wall Street forecasts of 10.8%. A dividend of $1.30 per share rose from the prior quarter’s $1.16 per share. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, raising its estimate of fair value to $1,225 per share from a previous $1,150. Fourth-quarter results are scheduled for 25 September. 

ii view:

Headquartered in Issaquah, Washington, Costco employs over 330,000 people across its stores globally. Geographically, the US generated most sales during 2024 at 72%, with Canada at 13.7% and other combined international businesses the balance of almost 14%. 

For investors, trade tariffs being applied on goods imported from overseas such as toys could reduce demand. An forward price/earnings (PE) ratio above the three- and ten-year averages may suggest the shares are not obviously cheap. Costs for businesses generally remain elevated, while the group’s e-commence operations lack the scale of rival Amazon.com Inc (NASDAQ:AMZN). 

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For the positives, diversity of revenue streams includes both membership fees and product sales, with the group’s geographical footprint also extensive. Scope for overseas expansion persists, e-commerce sales are growing, while Costco’s membership model enables ongoing investment in competitive product pricing.    

On balance, and despite continued risks, this value orientated retailer looks to remain worthy of its place in many already diversified investor portfolios.  

Positives: 

• Product diversity
• Value orientated

Negatives:

• Intense competition
• Subject to currency moves

The average rating of stock market analysts:

Buy