Costco (NASDAQ:COST) Misses Q2 Revenue Estimates

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Costco (NASDAQ:COST) Misses Q2 Revenue Estimates

Membership-only discount retailer Costco (NASDAQ:COST) missed analysts’ expectations in Q2 FY2024, with revenue up 5.7% year on year to $58.44 billion. It made a GAAP profit of $3.92 per share, improving from its profit of $3.30 per share in the same quarter last year.

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Costco (COST) Q2 FY2024 Highlights:

  • Revenue: $58.44 billion vs analyst estimates of $59.13 billion (1.2% miss)

  • EPS: $3.92 vs analyst estimates of $3.61 (8.5% beat)

  • Free Cash Flow was -$300 million, down from $2.30 billion in the same quarter last year

  • Gross Margin (GAAP): 12.5%, in line with the same quarter last year

  • Same-Store Sales were up 5.8% year on year

  • Store Locations: 875 at quarter end, increasing by 27 over the last 12 months

  • Market Capitalization: $343.1 billion

Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.

Large-format Grocery & General Merchandise Retailer

Big-box retailers operate large stores that sell groceries and general merchandise at highly competitive prices. Because of their scale and resulting purchasing power, these big-box retailers–with annual sales in the tens to hundreds of billions of dollars–are able to get attractive volume discounts and sell at often the lowest prices. While e-commerce is a threat, these retailers have been able to weather the storm by either providing a unique in-store shopping experience or by reinvesting their hefty profits into omnichannel investments.

Sales Growth

Costco is a behemoth in the consumer retail sector and benefits from economies of scale, an important advantage giving the business an edge in distribution and more negotiating power with suppliers.

As you can see below, the company’s annualized revenue growth rate of 11.1% over the last five years was decent as it opened new stores and grew sales at existing, established stores.

Costco Total Revenue

Costco Total Revenue

This quarter, Costco’s revenue grew 5.7% year on year to $58.44 billion, missing Wall Street’s expectations. Looking ahead, Wall Street expects sales to grow 5.9% over the next 12 months, an acceleration from this quarter.

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Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer’s established brick-and-mortar stores and e-commerce platform.

Costco’s demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company’s same-store sales have grown by 6.4% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Costco is reaching more customers and growing sales.

Costco Year On Year Same Store Sales Growth

Costco Year On Year Same Store Sales Growth

In the latest quarter, Costco’s same-store sales rose 5.8% year on year. This performance was more or less in line with the same quarter last year.

Key Takeaways from Costco’s Q2 Results

We were impressed by how significantly Costco blew past analysts’ gross margin and EPS expectations this quarter. On the other hand, its revenue unfortunately fell short. Overall, we think this was a mixed quarter considering fellow retail peer Walmart (NYSE:WMT) beat Wall Street’s sales estimates convincingly. Investors were likely expecting better top-line numbers from Costco, and the stock is down 4.3% after reporting, trading at $752 per share.

So should you invest in Costco right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.

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