Costco beat a Wall Street estimate on earnings in the third quarter, although it came up a bit short on revenues as lower discretionary spending on big-ticket items pressured results.
Net income was $1.3 billion, or $2.93 per diluted share, which included a non-recurring charge to merchandise costs of $298 million pretax, or 50 cents per diluted share, primarily for the discontinuation of charter shipping activities initiated during recent supply chain disruptions, the company reported. Last year’s third-quarter net income was $1.35 billion, or $3.04 per diluted share, which included a non-recurring $77 million pretax charge, or 13 cents per diluted share, for incremental employee benefits.
With the non-recurring charge excluded, Costco’s third-quarter earnings per share were $3.43, which topped a MarketBeat-published analyst consensus estimate of $3.32. However, revenues fell short of a $54.58 billion estimate.
Comparable sales, excluding the effects of gasoline and foreign exchange volatility, in the quarter year over year were up 3.5%, Costco stated, with comps in the United States up 1.8%, Canada comps up 7.4% and Other International comps up 8.4%. E-commerce comps slipped 9% sans foreign exchange and fuel price impact.
Net sales were $52.6 billion and revenue, including membership fees, was $53.65 billion, versus $51.61 billion and $52.6 billion, in the year-earlier period. Operating income was $1.68 billion versus $1.79 billion in the period a year before.
Speaking in a conference call transcribed by the Motley Fool, Richard Galanti, Costco CFO, said traffic or shopping frequency increased 4.8% worldwide and 3.5% in the U.S. but that average transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., largely due to weakness in bigger-ticket nonfood discretionary items. Big-ticket discretionary departments — notably major appliances and electronics, home furnishings, small electrics, jewelry and hardware — slipped about 20% in e-commerce and made up 55% of e-commerce sales. These same departments were down about 17% in warehouses, but they only make up 8% of warehouse sales.
Third-quarter membership fee income, Galanti pointed out, was $1 billion, up 5.7% from the year-past period.
Galanti noted that inflation continues to gradually abate and, given this quarter’s results, the company expects it to fall in the 3% to 4% range.