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Costco Q3 earnings miss estimates amid slower-than-expected sales growth

This report comes as shares of Costco are up 5.8% year-to-date, outpacing its competitors

Costco (COST) reported fiscal 2023 third-quarter earnings results Thursday after market close that missed analysts' expectations.

Last quarter, same-store growth slowed compared to previous quarters with people spending less, particularly on big-ticket items, amid higher grocery prices. Total sales for the quarter increased 1.9% compared to last year, to $52.60 billion.

Here's what Costco reported, compared to Wall Street estimates, based on Bloomberg consensus data:

  • Revenue: $53.65 billion versus $54.66 billion expected

  • Adjusted earnings per share: $2.93 versus $3.30 expected

  • Same-store sales: up 0.30 % versus 2.91% expected

    • United States: down 0.1% versus up 2.44 expected

    • Canada: down 1.0% versus up 1.30 expected

    • Other international: up 4.10% versus up 4.48%

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Foot traffic "remains pretty good," CFO Richard Galanti said on a call with investors. Traffic was up 4.8% globally and up 3.5% in the US during Q3. The average ticket was down though, 4.2% globally and down 3.5% in the US, "in large part, from weakness in bigger ticket nonfood discretionary items," Galanti said.

Big ticket, discretionary items, such as furniture, small electronics, jewelry, and hardware were down 17% from a year ago in-store and only made up 8% of warehouse (in-store) sales.

Its e-commerce sales also came in lower, down 10.0%. Currently, it operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia. Big ticket items in e-commerce sales were down 20% year-over-year, but made up 55% of e-commerce sales.

The company's international business continues to pick up momentum, however. As of Q3, there are 853 warehouses, including 587 in the U.S. and Puerto Rico, 107 in Canada, 40 in Mexico, 32 in Japan, 29 in the United Kingdom, 18 in Korea, 14 in Taiwan, 14 in Australia, four in Spain, three in China as it ramps up plans to grow its presence there, two in France, and one each in Iceland, New Zealand, and Sweden.

Membership fees, a key revenue stream for the wholesale retailer, brought in $1.04 billion, a tick lower than Wall Street estimates of $1.05 billion, but higher than a year ago from $984 million. The company did not announce plans to raise membership fees in the imminent future though.

Costco last raised membership prices — a Costco Gold Star membership costs $60 per year and an Executive Membership goes for $120 — in June 2017. The company typically raises prices every 5 years and seven months on average.

In the earnings call, UBS Analyst Michael Lasser, who has a Buy rating on shares and recently wrote in a note to investors said that now would be a good time to raise membership fees, prodded Galanti to see if he agreed.

Galanti had a witty response on the call. "Nice try, Michael, but at the end of the day, with the headline being inflation, we feel very good about if we want to do it, can we do it without impacting, in any meaningful way, renewal rates or sign-ups or anything and at some point, we will. But our view right now is that we've got enough leverage out there to drive business and we feel that it's incumbent upon us to be that beacon of light to our members in terms of holding them for right now. It will be — it's not a matter of a big time, but we'll let you know as soon as we know."

This report comes as shares of Costco are up 5.8% year-to-date, outpacing its competitors. Shares of Sam's Club's parent company Walmart (WMT) are up 3.5% so far this year, and shares of BJ's are down 2.9% after it saw Q1 same-store sales growth come in shy of expectations.

Meanwhile, big box retailers Target (TGT) and Walmart (WMT) beat same-store sales estimates in their recent quarterly results but also showed a similar slowdown in discretionary sales.

Minneapolis, Minnesota, Costco Business Center. Costco is a members-only warehouse selling everything from groceries to electronics. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images)
Minneapolis, Minnesota, Costco Business Center. Costco is a members-only warehouse selling everything from groceries to electronics. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images) (UCG via Getty Images)

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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