Costco’s third-quarter 2024 results will likely benefit from growth in e-commerce and traffic

Costco Wholesale Corporation (NASDAQ: COST) is scheduled to report third-quarter earnings on Thursday after markets close. The company has been steadily expanding its store network in recent years as others in the industry have come under pressure from high inflation and weak consumer spending. While the company keeps prices low to attract customers, higher-margin membership revenues drive profit growth.

New high

Shares of the Issaquah-based Warehouse Club set a new record high last week after trending sideways for about two months. The company recently raised its dividend by 14% to $1.16 per share. Although the regular quarterly dividend yield is below 1%, the company has already had a track record of returning excess cash to shareholders through special dividends. Costco’s fundamentals and growth prospects are so strong that it is unlikely to disappoint long-term investors. Notably, e-commerce performance continues to improve – an area where the company has historically lagged behind others.

When the retailer reports third-quarter earnings on May 30 at 4:15 p.m. ET, the market will expect earnings of $3.70 per share, up 26% from the same period last year. Revenue estimates for the third quarter are $58.04 billion, compared to $53.6 billion in the third quarter of 2023. For the second quarter of 2024, the company reported better-than-expected results, marking the third consecutive result, although the top result was not achieved achieved.

Tailwinds

Costco has a large customer base and maintains high store traffic that continues to grow, often at an accelerated rate compared to most others. This can be attributed primarily to its favorable merchandise mix and competitive pricing, which help the company remain resilient to adverse factors such as inflation and economic uncertainty. In the last quarter, e-commerce sales grew by 18% annually, contributing significantly to the result. Management estimates that 28 new stores will open in fiscal year 2024, with total capital expenditure expected to be approximately $4.5 billion.

From Costco’s Q2 2024 earnings call:

“In reference e-commerce, e-commerce sales in the second quarter excluding currencies increased by 18.2%. E-com has shown strength in several areas, led by gold sales and, more recently, silver sales. Also the devices were very, very powerful, as were the gift cards and e-tickets. Costco Logistics also reported record deliveries. A large portion of them – and many of these products are sold via e-commerce. We completed over 1 million deliveries in Q2 2024, an increase of 28% compared to Q2 a year ago. “When it comes to e-commerce sales over the last few months, we believe we have done a much better job of explaining to our members the significant value propositions we offer compared to traditional competitors in several key categories.”

EPS Beats, Miss Sales

Costco’s second-quarter net income rose 19% year-over-year to $1.74 billion, or $3.92 per share, on revenue of $58.4 billion, up 6% year-over-year. Continuing the recovery that began about a year earlier, second-quarter comparable store sales grew at a faster pace, up 5.6% compared to 3.8% in the prior quarter. At the end of the quarter, the company had an impressive cash balance of approximately $9 billion.

Earlier this month, Costco shares broke above the $800 mark for the first time and hit an all-time high. Over the last six months, COST has increased by approximately 37%. Stocks saw slight declines on Tuesday afternoon.