Investing in Costco: Strategic Insights from Q3 2024 Earnings

June 13, 2024

Costco stock buy

Costco’s share price has increased by 23.53% year-to-date

Source: SeekingAlpha, CGS International (as of June 4, 2024)

Costco’s net sales jumped 9.1% yoy to $57.4 billion

Source: Costco’s Q3 2024 presentation

Costco’s adjusted EPS grew by 29.0% and beat expectations in Q3 2024

Source: Costco’s Q3 2024 Presentation

Costco Wholesale Corporation (NASDAQ: COST) recently disclosed its financial results for the third fiscal quarter of 2024, marking a period of robust growth and operational efficiency. The company reported adjusted earnings per share (EPS) of $3.78, which was $0.07 above the consensus estimates. Notably, Costco’s net sales soared to $57.4 billion, representing a 9% year-over-year increase. These figures underscore the company’s ability to outperform market expectations and strengthen its market position.

3 Key Takeaways from the Earnings Report

  1. Strong Membership Growth: Costco continues to expand its membership base, with total paid memberships growing by 8% year-over-year to approximately 74.5 million. This growth is a testament to Costco’s compelling value proposition and customer loyalty.
  2. Increased Traffic and Sales: The company witnessed a 6.1% increase in worldwide traffic, with a 6.5% rise in consolidated comparable sales (excluding gas and FX impacts). These metrics highlight Costco’s effective strategies in attracting and retaining shoppers.
  3. Robust Financial Health: The quarter saw impressive financial health with an operating income of $2,197 million, outpacing consensus estimates. Additionally, the free cash flow remains strong, providing Costco with flexibility for further expansion and shareholder returns.

3 Key Reasons to Invest in Costco

  1. Consistent Financial Performance: Costco’s consistent revenue growth and strong profit margins make it a reliable investment, particularly in the uncertain retail sector.
  2. Expansive Global Reach: With plans for continued expansion both in the U.S. and internationally, Costco is well-positioned to capture new markets and consumer segments.
  3. Attractive Dividend and Shareholder Returns: The company’s policy of returning capital to shareholders through competitive dividends and special distributions enhances its attractiveness to investors.

3 Key Risks

  1. Market Competition: Intense competition from other bulk retailers and e-commerce platforms could pressure sales and margins.
  2. Global Economic Sensitivity: Changes in global economic conditions affecting consumer spending could impact Costco’s growth.
  3. Inflation and Supply Chain Risks: While current inflation trends are manageable, any future spikes or supply chain disruptions could affect operational efficiencies.

Call-to-Action Conclusion

For long-term investors, Costco represents a robust opportunity given its strong market fundamentals, solid growth prospects, and consistent shareholder returns. Investors are encouraged to consider the stability and potential of Costco as part of a diversified investment portfolio.

About Costco

Costco Wholesale Corporation is an international chain of membership warehouses, operating under the “Costco Wholesale” name. Founded in 1983 and based in Issaquah, Washington, Costco provides a wide range of merchandise at significantly low prices to its members. The company thrives on a business model of large sales volumes and rapid inventory turnover, coupled with a commitment to providing value, which ensures high customer loyalty and robust financial health.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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