4 Key Takeaways From Costco's Earnings Call

After Costco Wholesale (COST) reported better-than-expected profits but missed sales estimates, executives updated investors about the retailer's first membership fee hike in seven years, its international growth plans, and more in the company's earnings call Thursday.

Costco Sees 'Encouraging' Shifts in Consumer Spending

There are "definitely some signs" that stretched consumers are being careful about their spending, CFO Gary Millerchip said, though he added Costco has been encouraged by a rise in spending on some discretionary items as inflation eases. For example, jewelry, toys, gift cards, and home furnishings were a few product categories that saw sales rise by double digits year-over-year.

However, Millerchip said higher-cost items like electronics and appliances have "become more promotional over time," suggesting consumers continue to look for value when considering big-ticket purchases.

Improving Technology and Digital Sales

While Costco's digital sales growth slowed compared to the previous quarter, the retailer still reported nearly 19% higher e-commerce sales in the fiscal fourth quarter than the same time last year. CEO Ron Vachris said members have reacted positively to some of Costco's new digital features like improved app search and the ability to check a warehouse's inventory from the app, adding the Costco app has reached roughly 39 million downloads.

Vachris also said Costco's new membership card scanners, installed in much of Europe and now at 350 U.S. locations, help speed up the checkout process if a card is checked at the door instead, and gives Costco more accurate real-time traffic numbers.

Membership Fee Increase

Costco's first membership fee hike in seven years took effect Sept.1, as the quarter ended. Executives said on Thursday's call that they haven't seen any meaningful changes to renewal trends in the first month of the new price tiers, and that the financial impacts of the change could come towards the back half of fiscal 2025 and into fiscal 2026.

The retailer reported 76 million members at the end of the quarter, above the 75 million members analysts had projected, and up from 71 million the same time last year. Millerchip said Costco's U.S. and Canada membership renewal rate was 92.9% at the end of the quarter, and 90.5% globally, noting over half of Costco's new members in fiscal 2024 were also under the age of 40.

New Locations, International Growth Plans

Vachris said Costco opened 30 new locations in fiscal 2024, including its 600th location in the U.S. in Wisconsin and its first in Maine, giving Costco a presence in 47 states. It plans to open 29 locations in fiscal 2025, 12 of which are expected to come outside the U.S. as Costco expands its international efforts, where the retailer continues to see "significant opportunities," Vachris said.

Costco shares were 2.2% lower at $882.10 in intraday trading Friday, a day after the call. They've gained over one-third of their value since the start of the year.

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