Q3 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong Financial Performance: Costco reported net income of $1.68 billion or $3.78 per diluted share in Q3 2024, up from $1.3 billion and $2.93 per diluted share last year, marking a 29.1% increase year-over-year. Net sales increased 9.1% to $57.39 billion, with comparable sales up 6.6% overall and 20.7% growth in e-commerce sales.
- Growing Membership Base with High Renewal Rates: Membership fee income grew 7.6% to $1.123 billion. Paid household members increased 7.8% to 74.5 million, and executive memberships now represent over 46% of paid members and 73.1% of worldwide sales. U.S. and Canada renewal rates reached 93%, indicating strong member loyalty.
- Expansion and Innovative Growth Initiatives: Costco plans to open 30 new warehouse locations in fiscal 2024, signaling confidence in their business model. Digital enhancements led to app downloads increasing 32%, site traffic up 16%, and average order value up 8%. Their curated marketplace, Costco Next, continues to grow, adding new vendors and expanding product offerings to enhance member value.
- Limited expansion of Buy Online, Pick Up in Warehouse (BOPIS) due to capacity constraints, which may hinder Costco's ability to compete effectively in omnichannel retailing. Ron Vachris stated that BOPIS is "always going to be limited in scope based on the volume in our warehouses that we have."
- E-commerce capabilities are still in foundational stages, with a focus on improving basic functionalities like site reliability and fulfillment. Ron Vachris mentioned that "a lot of the work that's being done right now is very foundational," indicating that Costco may be behind competitors in digital innovation.
- Adherence to the 14-15% gross margin ceiling may limit profitability improvements, potentially constraining earnings growth. When asked about this threshold, Ron Vachris confirmed, "I don't see -- there's no plans to move that capital."
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Membership Fee Increase
Q: Will you increase membership fees soon?
A: Costco is considering increasing membership fees, which they usually do every five years and are now beyond that typical cycle. They feel good about renewal rates and delivering value to members. It's a question of when, not if, they will raise fees, but they're still evaluating the right timing. -
U.S. Warehouse Expansion
Q: Do you still have room to expand in the U.S.?
A: Costco plans to open close to 29 net new warehouses this year, many in the U.S., and still sees significant runway for U.S. expansion. Opening 25 to 30 new warehouses annually is a reasonable expectation for the foreseeable future. At least half of these will continue to be in the U.S., and they also see significant growth opportunities internationally. -
Margin Outlook
Q: Will you maintain your 14–15% margin ceiling?
A: Costco remains committed to its 14–15% gross margin ceiling, a long-standing policy. Their objective is to be aggressive on pricing and deliver the best value to members. They have no plans to change this approach. -
E-commerce and Technology Investments
Q: What are your plans for e-commerce and technology?
A: Costco is expanding Buy Online, Pickup in Warehouse, especially for electronics like televisions. Technology is a key priority to improve member engagement both in warehouses and online. They see opportunities in personalization and better integration of warehouse and online inventory, with app functionality being a significant opportunity. -
Consumer Spending Trends
Q: Are members spending more on discretionary items?
A: Yes, Costco is seeing increased discretionary spending, suggesting members feel better and are more willing to spend on wants. Categories like Home, Toys, Sporting Goods, Furnishings, and Domestics are performing strongly after lagging post-COVID. -
Retail Media and Personalization
Q: What's the opportunity in retail media and personalization?
A: Costco sees significant potential in retail media and personalization due to their unique member relationships. They've expanded their team and programs in this area and believe it can drive substantial growth. IT spending will increase but remain within normal CapEx levels. -
Leadership Changes and Strategy
Q: Will leadership changes lead to strategic shifts?
A: No major changes are planned; the current team continues to execute a proven strategy. They will keep innovating based on member needs but don't expect significant changes soon. New CFO Gary Millerchip aims to support a smooth transition and enhance technology and data initiatives. -
Competitive Pricing
Q: Do you need to lower prices to stay competitive?
A: No, being competitive on price is part of Costco's everyday operations. Buyers actively manage pricing daily, and they feel confident about their current competitive position.