Costco's Quarterly Profit Beats Estimates On Tariff Refunds

The big-box retailer reported earnings of $6.75 per share, excluding some items, in the quarter ended Aug. 30, higher than the average of analyst estimates compiled by Bloomberg. Tariff refunds added 15 cents of earnings per share.

At the same time, paid memberships rose less than expected in the period. The shares were little changed in late trading.

The retailer, which operates more than 900 locations around the world, has gained ground with competitive prices, large pack sizes and items that are hard to find elsewhere. Its limited assortment model, which focuses on only a few choices per category, has given it flexibility to navigate tariffs and other macroeconomic challenges efficiently.

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Costco's gas and travel businesses performed well, executives said on a call with analysts on Thursday, with one customer booking a 154-night cruise for more than $218,000. Home furnishings, small electronics and beauty items also led sales growth. Adjusted comparable sales rose 6.7% for the quarter, better than expectations.

The company got $184 million of tariff refunds in the last quarter and has received roughly the same amount for the ongoing period, executives said. The company has primarily used the proceeds to cut prices of products like meat, produce, beverages and home furnishings.

Food inflation has stayed at similar levels in recent months, according to Chief Financial Officer Gary Millerchip. Some non-food products have gotten more expensive due to higher memory chip costs and rising oil prices due to the Middle East conflict.

Younger consumers continue to join Costco, with members under 40 up nearly 60% since the pandemic, according to the company. That cohort now makes up more than 25% of Costco's shoppers. They start out spending less, but eventually that ramps up, Chief Executive Officer Ron Vachris said.

Online Sales

In recent years, the retailer has sought to expand its digital footprint by teaming up with third-party delivery companies like Instacart Inc., DoorDash Inc. and Uber Technologies Inc.

Though it's playing catch-up with competitors that are further ahead with their online businesses, Costco's e-commerce segment is growing faster than its other areas and helping to attract younger shoppers. On a comparable basis, Costco said digitally-enabled sales rose nearly 20%.

Consumer sentiment has remained weak in recent months due to elevated gas prices and inflation.

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That's sparking increased competition as companies try to lure price-sensitive shoppers with the right mix of offerings. Walmart Inc., Kroger Co. and Albertsons Cos. are lowering prices, using tariff refunds to fund these investments.