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What makes Costco’s Q1 earnings so ‘special’

Warehouse club's CFO talks special cash dividend, membership fee hike, e-comm's comeback, expansion mode

Amid its first-quarter earnings report, Costco Wholesale Corp. has declared a $15-per- share special cash dividend. This is the company’s fifth special dividend in 11 years.

For its first quarter of fiscal year 2024, ended Nov. 26, Costco’s net income was $1.589 billion, $3.58 per diluted share, compared with $1.364 billion, $3.07 per diluted share, last year. This year’s results included a tax benefit of $44 million (10 cents per diluted share), related to stock-based compensation. Last year’s results included a charge of $93 million pre-tax (15 cents per diluted share), primarily related to downsizing charter shipping activities, and a tax benefit of $53 million (12 cents per diluted share), related to stock-based compensation.

Costco reported net sales of $56.72 billion, an increase of 6.1% from $53.44 billion for the first quarter of fiscal year 2023. Net sales were benefited by approximately 0.5% to 1% in the United States and worldwide from the shift of the fiscal calendar, as a result of the 53 weeks in fiscal year 2023.

Comparable sales in Canada increased 6.4%.

“Overall, for the first fiscal quarter, fresh foods were relatively strong once again, with food and sundries right behind,” said CFO Richard Galanti during the company earnings call. “Non-food showed improvement over the September, October and November time frame, as did e-comm sales.”

E-commerce sales in Q1 excluding foreign exchange increased 6.1%, the first quarterly year-over-year increase in five fiscal quarters, and trended well during the three reporting periods of September, October and November. Galanti also mentioned that app downloads increased 10% during Q1.

“Costco Logistics enjoyed record-breaking deliveries in the first quarter of fiscal '24,” added Galanti. “We completed over 800,000 deliveries, which were up 17% versus the comparable quarter last year.”

In terms of Q1 comp sales metrics, traffic/shopping frequency increased 4.7% worldwide and 3.6% in the United States. Average transaction was down 9/10 of a percent worldwide and down 1.6% in the United States. 

Costco’s membership fee income in the quarter came in at $1.082 billion, or 1.91%. “That's an 82 million or 8.2% increase and a four-basis-point increase over the first quarter last year,” said Galanti. “In terms of renewal rates, at first quarter end, our U.S. and Canada renewal rate stood at 92.8%, while the worldwide rate came in at 90.5%.”

Galanti pointed out that membership growth continues. “We ended Q1 with 72.0 million paid household numbers, up 7.6% versus last year, and 129.5 million cardholders, up 7.1%, with consistent growth throughout the quarters,” he said. “At Q1 end, we had 33.2 million paid executive members, an increase of 939,000 during the 12 weeks since Q4 end. Executive members now represent a little over 46% of our paid members and a little over 73% of worldwide sales.”

Similar to previous earnings calls, Galanti said that although the company has no immediate plans to raise membership fees, “it's a question of when, not if” the membership hike will occur. 

During Q1, Costco opened 10 locations, including one relocation, in the United and Canada. For the full year of fiscal '24, Costco plans to open 33 locations, including two relocations. That's up from the 23 that the company opened in fiscal '23.

Costco's special cash dividend is payable on Jan. 12 to shareholders of record as of the close of business on Dec. 28. The aggregate amount of the payment will be approximately $6.7 billion.

Meanwhile, Costco CEO Craig Jelinek is getting ready to step down from his role on Jan. 1. Ron Vachris, current president and COO, will take over the role of president and chief executive on that date. Jelinek will remain with Costco through April 2024 in an advisory role and also to assist Vachris during the transition.

This article first appeared on Progressive Grocer

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