Costco (COST, Financial) is experiencing a dip in its stock price this morning, even after posting strong top and bottom line results for Q3. Investors had high expectations following impressive comparable sales in March and April, which led to a 13% rally in May. This set the stage for today's sell-the-news reaction.
Although the EPS beat may not have been as spectacular as some hoped, there is little to complain about in Costco's performance.
- Q3 comparable sales increased by 6.5% on an adjusted basis, driven by a 6.1% increase in store traffic. With cooling inflation, the average ticket was up by just 0.5% worldwide.
- During the earnings call, new CEO Ron Vachris noted improved demand for discretionary products. Less expensive categories like toys, tires, health and beauty, and lawn and garden stood out.
- Despite new leadership, no major strategic changes are planned. However, improving digital capabilities and technology is a major focus, including better delivery times, buy online, pick up in store options, and enhancements to the app and website. Last quarter, the company rolled out a new mobile app home page on Apple (AAPL, Financial) iOS.
- These initiatives are already showing results, with new app downloads up 32% to 35 million, pushing eCommerce comps higher by 20.7% in Q3. Appliances and precious metals like gold bars and silver bullion continued to perform well.
Overall, Costco continues to prove why it is a premier name in the retail sector, effectively navigating macroeconomic challenges. The company also has a potential membership fee increase in its arsenal, which should further support the stock.
