Costco’s Q3 2024 results likely to benefit from e-commerce and traffic growth

Costco Wholesale Corporation (NASDAQ: COST) is scheduled to report third-quarter earnings on Thursday after markets close. The company has expanded its store network regularly in recent years, while others in the industry came under pressure from high inflation and weak consumer spending. While Costco keeps prices low to attract customers, its higher-margin membership revenues drive profit growth.

New High 

Last week, the Issaquah-headquartered warehouse club’s stock set a new record, after trading sideways for around two months. Recently, the company raised its dividend by 14% to $1.16 per share. The regular quarterly dividend yield is below 1%, but the company has a history of returning excess cash to shareholders through special dividends. Costco’s fundamentals and growth prospects are so strong that it is unlikely to disappoint long-term investors. It is worth noting that e-commerce performance is improving steadily, an area where the company lagged behind others in the past.

When the retailer releases third-quarter results on May 30 – at 4:15 pm ET –the market will be looking for earnings of $3.70 per share, which represents a 26% growth from the same period last year. The estimate for Q3 revenue is $58.04 billion, compared to $53.6 billion in the third quarter of 2023. For the second quarter of 2024, the company reported better-than-expected earnings, marking the third consecutive beat, while the top line missed.

Tailwinds

Costco has a large customer base and it maintains strong store traffic that keeps growing, often at an accelerated pace compared to most others. That is primarily attributable to favorable merchandise mix and competitive prices, which help the company stay resilient to headwinds like inflation and economic uncertainties. In the most recent quarter, e-commerce sales jumped 18% annually, contributing significantly to the top line. The management estimates 28 new store openings for fiscal 2024 when it targets a total capex of about $4.5 billion.

From Costco’s Q2 2024 earnings call:

“In terms of e-commerce, e-commerce sales in Q2 ex FX increased 18.2%. E-com showed strength in several areas, led by sales of gold and very recently, silver. As well, appliances were very, very strong as were gift cards and e-tickets. As well, Costco Logistics enjoyed record-breaking deliveries. Much of that — and many of those items are sold via e-commerce. In Q2 of ’24, we completed over 1 million deliveries, up 28% versus Q2 a year ago. In terms of e-commerce sales over the past few months, we believe we’ve done a much better job explaining to our members the significant value propositions we offer compared to traditional competitors in several big-ticket categories.”

EPS Beats, Sales Miss

Costco’s second-quarter net income climbed 19% year-over-year to $1.74 billion or $3.92 per share on revenues of $58.4 billion, which is up 6% year-over-year. Extending the recovery that started about a year earlier, Q2 comparable store sales grew at a faster rate of 5.6% than 3.8% in the preceding quarter. At the end of the quarter, the company had an impressive cash balance of about $9 billion.  

Earlier this month, Costco’s stock crossed the $800 mark for the first time and reached an all-time high. In the past six months, COST gained about 37%.  The shares traded slightly lower on Tuesday afternoon.