Move Over Target and Walmart, Costco Gets the Gold Star

For the three-month period ended May 8, Costco posted adjusted earnings per share of $3.17 (GAAP EPS: $3.04), which was a comfortable beat, on revenue of $52.596 billion. Not only did the sales number beat Wall Street by more than a cool $1 billion, it was also good enough for year-over-year growth of 16.2%. The adjustment of $0.13 per share was related to a one-time $77 million pre-tax charge for incremental benefits awarded under the firm’s new employee agreement that was effective March 14.

Comparable sales adjusted for fluctuations in gasoline price and currency valuations came to growth of 10.7% in the US, 12.8% in Canada, 9.1% for other international, and 10.8% across the entire company. E-commerce comp sales increased 7.9%.

Some Nitty Gritty

Revenue from membership fees increased 9.2% to $984 million. The company ended the quarter with 116.6 million total cardholders and 27.9 million paid executive members. That’s growth of 1.6% and 2.9%, respectively. Renewal rates were a strong 92.3% across North America, an improvement over last year’s 92.0%.

Because You Were Going To Ask…

Management made no mention of any kind of special dividend. I know that is something that Costco shareholders look for. Another item of interest has been the idea that the firm might try to boost gross margin through a membership fee increase. Costco, historically, has raised this fee every 5.5 years or so. Last time it did? That’s right, 2017. So, it’s almost due. The firm addressed this last during the call. Management does not believe the time is right, given the pressure that the U.S. consumer is under, which is mighty decent of management. Not so great for shareholders, unless they are also customers, but mighty decent indeed.

Balance Sheet

Costco ended the reporting period with a net cash position of $11.831 billion and merchandise inventories of $17.623 billion. That brings current assets up to $33.008 billion. Current liabilities amount to $31.845 billion. That makes Costco’s current ratio 1.04, which passed my test, not by a mile, but it passed. I understand why inventories are heftier, not just here, but across the retail landscape, and while not a sign of immediate concern depending on just what is in inventory, this certainly is a risk, which may be why the firm kept quiet concerning any kind of special dividend.

Total assets came to $63.852 billion. To Costco’s credit, there are no intangibles listed on the balance sheet as assets. Total liabilities less equity adds up to $43.339 billion, including $6.507 billion in long-term debt and $2.452 billion in long-term lease liabilities. The firm can pay off these liabilities out of pocket if need be.

Wall Street

I can find seven sell-side analysts who are rated at either four or five stars by TipRanks and have also opined on Costco since these earnings were released. There are five “Buy” or equivalent ratings and two “Hold” or equivalent ratings. One Of the “buys” did not set a target price, so I only have six of those to work with. The average target price of the six is $546.33 with a high of $590 (Joe Feldman of Telsey Advisory) and a low of $510 (Paul Lejuez of Citigroup). The average of the four “Buys” is $554.50, while the average of the two “holds” is $530.

My Thoughts

I am impressed with how well Costco executed this past quarter. It really makes both Walmart and Target look awful.

Readers will note that from April through the Walmart/Target meltdown, that the stock gave back (retraced) a rough 61.8% of the entire march 2021 through April 2022 rally. Now, we will zoom in a little…