COSTCO WHOLESALE CORP (COST) Earnings Summary for Q4 FY2024

Key Metrics

• Revenue
  • Net Sales: $78.2 billion (1% yoy)
  • Membership Fees: $1.512 billion (0.2% yoy)
• Gross Margin: 11% (up 40 basis points yoy)
• SG&A Margin: 9.04% (up 8 basis points yoy)

Forward guidance

1. Fiscal 2025 Warehouse Openings: Expect to add 26 net new buildings, with 12 planned outside the US.
2. Membership Fee Income Impact: The majority of the benefit from the recent membership fee increase will be realized in the second half of fiscal 2025 and into fiscal 2026.
3. E-commerce Growth: Anticipate continued strong growth in e-commerce, particularly in big and bulky items.
4. Tax Rate Guidance: Adjusted tax rate for Q4 was 26.4%, down from 27.1% in the previous year.
5. SG&A Rate: Reported SG&A rate for Q4 was 9.04%, with expectations to drive productivity to mitigate costs.
6. Interest Income Outlook: Interest income will continue to be a headwind in the first half of fiscal 2025 due to lower cash balances and interest rates.
7. Wage Increase: Average wage for employees is now just over $30 per hour in the US and Canada.

Key takeaways

• Positives:
  • Ron Vachris emphasized the importance of employee investment, stating, "Investing in our employees remains a key part of our strategy," which supports long-term growth and productivity.
  • E-commerce sales grew significantly, with Vachris noting, "Logistics delivered over 4.5 million items this last year, up 29% over the year prior," indicating strong demand and operational efficiency.
  • The company opened 30 new warehouses in FY2024, with plans for 26 net new buildings in FY2025, including international expansion, reflecting growth potential.
  • Membership fee income increased, with Gary Millerchip stating, "Excluding the impacts from the extra week last year, and FX normalized membership fee income was up 7.4%," indicating strong member retention and growth.
  • The introduction of technology like card scanners has improved operational efficiency, with Vachris noting, "We've realized some very nice, healthy front-end improvements in productivity."
• Negatives:
  • The slight decrease in US renewal rates to 92.9% was attributed to a digital promotion, with Millerchip explaining, "The lower renewal rates for that cohort...had a negative impact on the overall US renewal rate."
  • Inflationary pressures remain, particularly in fresh foods, with Millerchip stating, "We saw a little bit of inflation in fresh...mainly driven by produce," which could affect consumer spending.
  • The potential impact of a port strike was acknowledged, with Vachris stating, "It could be disruptive based on how impactful...but it is in our sights," indicating operational risks.
  • Interest income is expected to be a headwind due to lower cash balances, as noted by Millerchip, "Interest income will continue to be a headwind in the first half of this year."

Peer Summary

• Consumer Demand Softening: Walmart's Doug McMillon noted, "the economic and geopolitical backdrop... is perhaps more uncertain than normal," indicating potential challenges in consumer spending.
• Competitive Pressures: Kroger's Rodney McMullen stated, "The retail industry continues to be more competitive," highlighting the need for ongoing adjustments in offerings to maintain market share.
• Inflationary Pressures: BJ's Bob Eddy acknowledged, "investments in pricing and promotions are necessary due to increased price sensitivity among consumers," suggesting that inflation is impacting consumer purchasing behavior.
• E-commerce Growth: Amazon's Andy Jassy emphasized, "We're continuing to lower prices and ship even more quickly," reflecting a strong focus on enhancing online shopping experiences amid rising competition.
• Operational Challenges: Target's Michael Fiddelke mentioned, "the macroeconomic environment remains volatile," indicating that external factors are influencing inventory management and consumer behavior.