Costco posts upbeat first-quarter results on strong demand for cheaper groceries

By Granth Vanaik

(Reuters) -Costco Wholesale topped Wall Street estimates for quarterly sales and profit on Thursday, as more customers turned to its stores to shop for cheaper groceries and essentials, sending its shares up about 2% after the bell.

Costco has increased its sales and market share thanks to its strategy of maintaining low prices on basic essentials as well as a devoted membership base that benefits from incentives offered like a yearly 2% reward on qualified purchases at its warehouses.

The company has also seen sales surge for its consumable categories like fresh food and sundries as well as private-label brand Kirkland Signature, as persistent inflation and higher borrowing costs pinches household budgets.

CFO Richard Galanti on a post-earnings call said the company saw some non-food categories like televisions and appliances show an improvement during the quarter.

Galanti also said that Costco saw better-than-expected Black Friday and Cyber Monday sales, echoing sentiment from other retailers like Foot Locker that have signaled optimism over holiday season sales.

“Costco’s performing very well relative to the rest of the retail sector,” Telsey Advisory Group analyst Joseph Feldman said, adding that it is well positioned in the market by catering to middle-to-upper-income consumers.

Costco saw its total paid household members rise by 7.6% in the quarter, while its membership fee revenues jumped 8.2% to $1.08 billion.

“We’re happily surprised that we are continuing to drive people in on an increasing basis,” Galanti said.

The company’s gross margins rose 43 basis points to 11.04% as it saw shipping costs ease from their peak last year.

The membership-only retailer also announced a special cash dividend on its common stock of $15 per share payable on Jan. 12.

Total revenues rose 6.1% to $57.8 billion in the first quarter, compared with analysts’ estimates of $57.72 billion, according to LSEG data.

Costco reported a per-share profit of $3.58, above expectations of $3.42.

(Reporting by Granth Vanaik in Bengaluru; Editing by Maju Samuel)