Shares of Costco Wholesale (COST) closed up 2.98% on September 26.
The advance against the grain of a generally down market comes after the company announced a beat on both revenue and earnings for its fiscal fourth quarter on Thursday, September 22.
The company reported revenue of $72.09 billion, slightly above Wall Street projections of $71.89 billion. Adjusted earnings per share were $4.20, above estimates of $4.14. a share. Same-store sales increased by 14.9%. (By the way, I went Costco shopping on Saturday myself. The store on East 116th Street in Manhattan was jammed.)
Costco’s paid household membership rose to 65.8 million with 118.9 million cardholders. Both numbers were up 6.5% year over year. Membership renewal rates remained north of 90%.
Significantly, the company did NOT announce an increase in its membership fees. The company raises membership fees every 5 years and 7 months on average. That puts the next potential fee increase in January 2023. That’s important to investors because it puts that big increase in revenue in the company’s future. In the fourth quarter revenue from memberships was $1.3 billion up from $1.2 billion a year ago.
“There are no specific plans regarding a fee increase at this time,” said CFO Richard Galanti on a call with investors. “We’re pleased with our growth in both, top-line sales and membership households over the last several quarters, and member loyalty is reflected in increasing member renewal rates. We’ll let you know when something is about to happen.”
Costco also has a history of paying special dividends in (mostly) alternating years (fiscal 2013, 2015, 2017, and 2021. Morningstar expects the next special dividend in fiscal 2023 (which just started for the company) with a likely $16 a share payout.
This isn’t an easy environment–either in the economy or the stock market–for retail stocks. I think Costco (and recent portfolio addition Kroger (KR)) are the best picks in that sector during a time of inflation and a slowing economy.
I added Costco to my Jubak’s Picks Portfolio on March 29, 2022. The stock is down 16.20% since then as of September 26. At the time of that pick, I calculated a target price of $603 a share. With the economy slowing and inflation remaining elevated I’m going to reduce that target price as of September 26 to $570 a share. But I will keep Costco as a member of this portfolio.