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Costco Q3 earnings beat all key metrics after the stock closed at an all-time high

Costco (COST) posted another bulk-sized quarter as consumers look for wallet-friendly prices on everyday essentials.

On Thursday afternoon, the company reported net sales of $58.52 billion, compared to estimates of $57.98 billion. Its adjusted earnings of $3.78 also beat estimates of $3.70.

"We're definitely winning in consumables, as we see the food business and dining away from home has softened up a bit," CEO Ron Vachris, who stepped into the role in January, said on a call with investors.

Same-store sales, excluding fuel, jumped 6.5%, led by its growing international business (up 8.5%), Canada (up 7.4%), and the US (up 6%).

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This comes as consumers are looking for value in groceries. In April, grocery prices jumped 1.1% compared to last year but dropped 0.2% compared to March, per the US Bureau of Labor Statistics.

As inflation moderates, consumers are returning to discretionary items "led by toys, tires, lawn and garden, and health and beauty aids," CFO Gary Millerchip said on the call.

Read more: Inflation slowed in April — here’s how that affects your wallet

Costco stock slipped roughly 2% in premarket trading on Friday. As of Thursday, its shares were up 25% year to date, outpacing the S&P 500's (^GSPC) 10% gain, and closed at a record high prior to reporting its fiscal Q3 results.

In the quarter, the wholesale retailer saw foot traffic go up year over year, beating the likes of Sam's Club (WMT) and BJ's Wholesale Club (BJ), according to Placer.ai.

Vachris said Costco won't need to enact wide-ranging price cuts like Target (TGT) and Walmart (WMT) to compete for customers.

"Buyers [for the company] are on top of pricing daily, weekly, and we all review them each month and so we feel very good about where we are today and our runway to continue to be as competitive as we are moving forward," he said.

Costco did reduce prices on some items in its private label brand, like Kirkland Signature pine nuts and Kirkland Signature frozen shrimp skewers.

E-commerce is another bright spot with a 20.7% jump, which Millerchip said was "led by gold and silver bullion, gift cards, and appliances." New app downloads grew 32% to 35 million.

The company also expanded its partnership with Uber Grocery in the US and Canada.

Its logistics business saw deliveries increase 28% year over year. That delivery business competes with Best Buy (BBY) and offers items like televisions, computers, appliances, tires, and even mattresses.

Costco is piloting offering warehouse inventory online, but Vachris said the company intends to preserve its in-store experience.

Membership fees, a key revenue stream, came in line with estimates at $1.12 billion, a 7.6% increase compared to a year ago. A Costco Gold Star membership costs $60 per year, while an Executive Membership goes for $120. Some on the Street predicted last year that Costco would raise fees this summer.

In Q3, the company had 74.5 million total paid members, with 34.5 million executive memberships.

When an analyst asked if it would raise fees, Millerchip said, "That is still a case of when we increase the fee, rather than if we increase the fee."

Stifel managing director Mark Astrachan said he believes the plan to wait "reflects a view the company has sufficient levers to drive profitably EBIT/EPS growth, and also likely the weaker consumer spending environment."

Offering advertising solutions could be an opportunity, given Costco's access to member data. Walmart's US retail media business, Walmart Connect, saw 26% sales growth in its recent quarterly results.

"We continue to believe a premium valuation is warranted, given Costco's superior global unit growth prospects, leading competitive position, and track record of driving share gains," Oppenheimer analyst Rupesh Parikh wrote in a note to clients prior to the report, adding that "management can unlock even more shareholder value over time through driving alternative revenue streams."

JPMorgan analyst Christopher Horvers wrote that the company's stock continues to benefit from a higher-income customer base, along with a long history of consistent market share gain.

COLCHESTER, VERMONT - NOVEMBER 13: A family moves through the check out lane with its groceries at a Costco Wholesale store November 13, 2023 in Colchester, Vermont. (Photo by Robert Nickelsberg/Getty Images)
A family moves through the checkout lane with their groceries at a Costco Wholesale store on Nov. 13, 2023, in Colchester, Vermont. (Robert Nickelsberg/Getty Images) (Robert Nickelsberg via Getty Images)

Here's what Costco posted in its fiscal third quarter earnings, compared with Wall Street estimates:

Net sales: $58.52 billion versus $57.98 billion

Adjusted EPS: $3.78 versus $3.70

Total company comparable sales, excluding fuel: 6.5%, compared to 5.93%

  • US same-store sales growth: 6% versus 5.51%

  • Canada same-store sales growth: 7.4% versus 6.96%

  • Other international: 8.5% versus 7.46%

E-commerce growth: 20.7% versus 11.5%

Membership fees revenue: $1.12 billion versus $1.12 billion

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

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