Where Costco (COST) is headed after reporting mixed Q4 results?

Costco Wholesale Corporation (NASDAQ: COST) witnessed stable store traffic in fiscal 2024 despite high inflation and cautious consumer spending, and the trend continued after the company raised membership fees recently. While constantly expanding its store footprint across the globe, the company is also aggressively ramping up its e-commerce capabilities. Costco Logistics, its home-delivery division for select items, performed quite well last year.

Stock Dips

The membership-only big-box retailer’s stock slid soon after the earnings announcement, mainly reflecting the market’s disappointment over the sales miss. Signaling a recovery, the shares opened higher on Monday, but they are still trading 2% below the all-time highs reached last week. The company has increased its quarterly dividend in double-digits every year in the recent past, adding to the stock’s appeal as a long-term investment. Meanwhile, at the current price, the stock looks overvalued.

The Issaquah-headquartered warehouse giant’s fourth-quarter revenue rose modestly to $79.70 billion from $78.94 billion in the corresponding period last year. Total comparable store sales grew at a slower pace of 5.4% year-over-year in Q4, after accelerating in the trailing four months. E-commerce sales grew an impressive 18.9%, thanks to ongoing growth initiatives in that area though the company is yet to incorporate some of the advanced technologies used by others like Walmart.

EPS Beats

Net income came in at $2.35 billion or $5.29 per share in the August quarter, compared to $2.16 billion or $4.86 per share in Q4 2023. The bottom line exceeded Wall Street’s estimates, the fifth beat in a row, while sales missed. Costco Logistics, the retailer’s home-delivery arm, shipped over 4.5 million items in FY24, marking about a one-third increase over the prior year.

Commenting on the significant contribution by non-food items to Q4 comparable sales growth, Costco’s CFO Gary Millerchip at the earnings call, “Our buyers have done a fantastic job finding new and exciting items at great values. Gold and jewelry, gift cards, toys and seasonal, home furnishings, tires, and housewares, all were up double digits in the quarter. Health and beauty aids also performed well as we have expanded and elevated that category with new high-end SKUs, both online and in warehouse, including assorted luxury fragrances at a 30% to 70% value to retail. Across the fresh departments, we saw high single-digit growth as our continued focus on value is resonating with our members.

Expansion

In fiscal 2025, the company plans to open 12 new stores outside the US, including the fifth location it opened in Spain recently. In 2024, it achieved the target of opening 30 new warehouses. Constantly enhancing member experience is a key priority for Costco leadership, through measures like installation of card readers to speed up the checkout process. Such facilities, combined with discounted prices, should ensure strong customer loyalty despite softening confidence and economic uncertainties.

Recovering from the downturn that followed the earnings, Costco’s shares gathered strength on Monday and traded higher in the afternoon. The value has nearly doubled in the past two years. The 52-week average price is $738.91.