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5 Key Numbers from Costco’s Q4 Earnings Report | The Motley Fool

The retail powerhouse Costco (NASDAQ:COST) continues to impress investors, recently releasing Q4 results that showed off what it can do better than anyone else. In this video clip from “Beat & Raise,” recorded on Sept. 24, Fool.com contributors Brian Withers and Demitri Kalogeropoulos break down the most outstanding results from the latest earnings report. 

Brian Withers: Demitri, let’s talk about Costco, a longtime Fool holding.

Demitri Kalogeropoulos: Such a great business. Yeah, they reported earnings yesterday. Costco, everyone knows the warehouse retailer, second largest retailer in the world behind Walmart. The big takeaway from this one I would say is Costco is gaining ground in a growing industry. I guess that’s if you had to remember something. It’s just a world-class retailer and it’s showing off what it can do better than almost anyone else and that all came through in this report. I’m going to highlight five numbers here and the first one is growth that everyone follows. The executives at Costco like to say we are a top-line business and the rest takes care of itself and that’s the important number to watch. Comparable store sales were up nine percent this quarter.

Withers: Nine, wow.

Kalogeropoulos: Yeah. Thirteen percent for the full year. It’s on top of big numbers last year and not only is that just really great by itself but it stacks up really well against competitors in this industry and all the competitors are doing pretty well too. Walmart recently reported five percent comps which they were celebrating too and so Costco is almost twice that rate. Kroger more of a pure-play supermarket had a one percent decrease but they’re still really happy with what their two-year growth number is too. Costco is growing faster than them.

The second number is their renewal rate and this is great because Costco it’s a retailer technically but it is a warehouse club. I’d like to remind people that they get most of their earnings from subscriber fees, it’s like a club business, subscription business, and they sell products just on the side you might say. That’s not where they earn their profits. The renewal rate is really great to watch not only because of that, but also because it tells you how engaged customers are and whether they’re getting a lot of value out of their membership and that has been sitting at near record high of 91 percent of people renewing which is just amazing and actually ticked up three-tenths of a percent. It’s up to 91.3 percent. I can’t really confirm that but I know we got to be close to a record higher on that one so that’s great news for Costco of course. It tells us all good things about the company. Some people don’t know this, they make it so easy to cancel, it’s a little bit like Netflix is and a lot of people use that as a good sign of a good business. If they make it easy for you to cancel, they almost dare you to cancel because they’re so confident in their service.

Withers: [laughs]

Kalogeropoulos: Costco, you can cancel and get a prorated not even appropriate, you get a full refund for whatever your payment is. You can use it for 90 percent of the year and cancel but almost nobody does that. I think in today’s environment with this inflation, all prices going up, I think, that’s one of the reasons why their renewal rates are jumping or climbing higher because people know Costco has been a price leader. Also, more people are signing up for those executive memberships. Those are the premium tier memberships and people tend to hold those a little bit longer. The third number is inflation. Talking about inflation and that’s 4.5 percent. Now, Costco started this year estimating 1.5 percent inflation basically across their entire basket of services which is a little bit on the high side. Three months ago they move that up to 3.5 percent, and then this week, they said 4.5 percent. Could be as high as 4.5 percent this year. That’s a big swing in about six months and everything is going up price-wise anything that incorporates plastics, they’re talking about trash bags, paper cups, metals, anything that has chips in it, consumer electronics, aluminum foil. All these costs are going up. Dairy, meat, and shipping is just booming in terms of the expenses they’re paying. That’s something that Costco is having to deal with just like everybody else.

But again, this is one of those things that plays into Costco’s advantage even though you wouldn’t think so because it might pressure gross margins but Costco again doesn’t count on its gross profit margin as much as a company like Walmart does. The more prices change, I think the more people think about where can I save some money and they think Costco, Costco is the price leader. Just like when gas prices are rising, that tends to be a time when more people go to Costco it’s a great position to have in the industry. The fourth metric is, so in their profitability standpoint, gross margin. That was basically study there is a lot of movement in this one. It’s hard to see how that’s going but the bigger picture is Costco’s profit margins are strong and they’re getting stronger and it’s pretty amazing too because their margins are a lot higher than they were before the pandemic and a lot of that is because their volume is so much bigger than it was two years ago.

But also they gave a little ground on pricing this quarter, but they made up for that in it’s ancillary businesses which is stuff like it’s gas and pharmacy and it’s food, and it’s travel. It does a little travel things and insurance and tires and all that stuff it’s ancillary businesses. Those margins were up and that offset some of the hit that they took for prices. The last number I will give you guys to think about which hit my eye which I thought was interesting is three. That’s the number of ocean freight vessels that Costco has contracted for its own exclusive use right now for the next year because it was tired of dealing with these bottlenecks.

Withers: [laughs]

Kalogeropoulos: It’s like forget it I’m just going to buy my own fleet. There’s this fleet of Costco ocean freight vessels that are going to be going on the seas in the next year. Management estimates that these vessels can deliver about as many as 30,000 containers over the next year back and forth from Asia to Canada and United States. That’s one way that Costco is trying to get around these amazing supply chain issues that everybody is having. I think most retailers would love to be able to do that, but very few have the logistics or the cash on hand that Costco does to have its own little mini fleet of vessels going around. That’s just another example why this is such a uniquely strong business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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