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Costco Stock Plunges 6% as Consumers Stay Cautious Amid Tariff Threats

HomeCostco Stock Plunges 6% as Consumers Stay Cautious Amid Tariff Threats

Costco Stock Plunges 6% as Consumers Stay Cautious Amid Tariff Threats

Costco Stock Plunges 6% as Consumers Stay Cautious Amid Tariff Threats

Costco's Mixed Q2 Results Show Consumers Remain Cautious About Spending

Despite reporting mixed results for its fiscal second quarter, Costco's revenue slightly beat expectations while adjusted earnings per share fell short. The wholesale retailer's shares declined more than 6% in early trading on Friday, extending losses from the previous day.

Revenue and Earnings Outperform Expectations

Costco reported revenue of $63.72 billion, which was higher than Bloomberg consensus estimates of $63.01 billion. However, adjusted earnings per share came in at $4.02, compared to estimates of $4.11. The slight miss on earnings per share may be a concern for investors, but the strong revenue growth indicates that Costco's business is still performing well.

Same-Store Sales Growth

The same-store sales growth was another key metric that showed positive results. Overall same-store sales jumped 6.8%, beating expectations of 6.38%. However, same-store sales fell short in Canada and other international markets, with a decline of 4.6% and 1.7%, respectively. The strong performance in the US market was driven by an increase in traffic and basket sizes.

E-commerce Growth

Costco's e-commerce growth also showed significant improvement, with a 22.9% increase compared to expectations of 15%. This growth is likely due to the increasing demand for online shopping, especially during the pandemic.

Tariffs and Inflation

The company mentioned that tariffs are still a concern, and it is difficult to predict their impact on business. However, CEO Ron Vachris stated that Costco's team remains agile and aims to minimize the impact of related cost increases to its members. The company has been proactive in managing supply chains and inventory levels to mitigate any potential risks.

Membership Fee Revenue

Membership fee revenue was $1.19 billion, slightly lower than expectations of $1.22 billion. This decline may be a concern for investors, but it is essential to note that the overall membership growth remains strong.

Earnings Breakdown

Here's a detailed breakdown of Costco's fiscal second-quarter results:

  • Revenue: $63.72 billion versus $63.01 billion (expected)
  • Adjusted earnings per share: $4.02 versus $4.11 (short)
  • Total company comparable sales growth: 6.8% versus 6.38%
  • US same-store sales growth: 8.3% versus 6.22%
  • Canada same-store sales growth: 4.6% versus 4.73%
  • Other international sales growth: 1.7% versus 4%
  • E-commerce growth: 22.9% versus 15%

Same-Store Sales Growth by Category

Same-store sales of gold and jewelry, gift cards, toys, housewares, appliances, sporting goods, home furnishings, and small electronics grew by double digits in the quarter. Fresh food increased by high single digits, but fresh groceries were "the most inflationary" category driven higher by meat and bakery goods.

CEO Comments

CEO Ron Vachris stated on Costco's earnings call that "our operations and merchandising teams did a fantastic job in the quarter, delivering strong operating results despite the uncertain macro environment." CFO Gary Millerchip added that consumers remain focused on "quality, value, and newness" but are becoming more choiceful due to inflationary pressures.

Outlook

Bank of America analyst Robert Ohmes is still bullish on Costco's stock, stating that it has more room to run. He wrote in a client note after the earnings that Costco will gain share in the current environment as consumers continue to adjust to higher prices, making Costco's value proposition more attractive.

The earnings breakdown and CEO comments indicate that Costco remains committed to its business model, which focuses on offering high-quality products at affordable prices. Despite the mixed results, the company's strong revenue growth and e-commerce expansion suggest that it is well-positioned for future success.

Conclusion

Costco's fiscal second-quarter results show a mixed bag of performance, with some key metrics exceeding expectations while others fell short. However, the overall picture indicates that the company remains committed to its business model and is adapting to changing market conditions. As consumers continue to prioritize value and quality, Costco's strong track record in these areas will likely remain a key driver of its success.

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