Costco beats revenue estimates on rebound in discretionary demand

Costco Wholesale (COST.O) beat third-quarter revenue expectations as cash-strapped consumers flocked to its stores for low-priced discretionary and grocery items.

The retailer, which operates under a membership model, experienced a strong boost in the sale of fresh food and bakery products, including new products such as lemon blueberry bread, breakfast buns and chocolate chip cookies, as consumers, grappling with a still-high cost of living, preferred to cook more meals at home.

"As inflation has stabilized, members are returning to buying more discretionary items, with growth led by toys, furniture, lawn and garden supplies, as well as health and beauty products," CFO Gary Millerchip said on a post-earnings call. Earlier this month, retail benchmark Walmart (WMT.N) beat quarterly estimates and forecast positive annual targets, backed by steady demand for cheaper groceries and expectations of a pickup in demand for nonessentials.

In the first quarter, visits to Costco Wholesale were up 8.9% year-over-year, while visits to Walmart and Target were up 3.9% and 3.5% respectively, according to data from Placer.ai.

However, another larger competitor, Target (TGT.N), reported a dismal quarter due to weak consumer spending. Costco's total revenue was $58.52 billion for the quarter ended May 12, compared with analysts' average estimate of $58.07 billion, according to LSEG data. The company also reported earnings of $3.78 per share, above estimates of $3.70. "In a world where most retailers have suffered some volatility or weakness, Costco is a rare beacon of consistency," said Scot Ciccarelli, an analyst at Truist Securities.

Costco's total comparable sales increased 6.5% on an adjusted basis in the quarter, compared to an increase of 3.5% last year. The company's e-commerce comparable sales increased 20.7%, led by sales of gold and silver bullion, gift cards and home appliances.

Collaboration: Grupo Auge | Reuters (International).