Costco Wholesale stock dropped in after-hours trading on Thursday after the wholesale retailer posted fourth-quarter results that failed to energize investors.
Wall Street wasn’t expecting to be blown away by Costco’s (ticker: COST) earnings, given that it’s one of the few companies that still provides monthly sales updates, eliminating speculation. And for the most part, it wasn’t.
Costco posted a net income of $1.87 billion for the quarter, or $4.20 a share, slightly better than analysts consensus for $4.17 a share. Sales were $70.8 billion, while same-store sales grew by 13.7% in the quarter—both in line with expectations.
Yearly results were also in line with consensus. The company reported $222.7 billion in sales and earnings per share of $13.14.
Still, Costco stock ticked down 2.5% in after-hours trading on Wednesday, partly because investors were factoring in a positive surprise ahead of earnings. Investors were also concerned about the company’s margins, which saw a contraction in the fourth quarter.
Gross margins came in at 10.1%, down by 74 basis points year over year, said Costco Chief Financial Officer Richard Galanti. The company continue to see pressure from higher prices for wages, commodities, and transportation costs, he added.
Fourth-quarter price inflation clicked in at 8%, up from 7% the previous quarter, driven by a surge in food and sundries.
Perhaps the biggest disappointment was for investors who were still holding out hope that Costco would be raising its membership fees after
) Sam’s Club division announced it would hike fees for the first time in nearly a decade to offset inflation. An increase in membership fees could help pad Costco’s razor-thin margins.
“There are no specific plans regarding a fee increase at this time,” Galanti said. “We’re pleased with our growth in both top line sales and membership households over the last several quarters.”
In the fourth quarter, membership fee income came in at $1.33 billion, Galanti said, adding that the decision to raise prices was a matter of when, not if.
“We are not shy about doing what we have to do to drive the top line and we’ll continue to do that,” Galanti said.
The stock’s pullback isn’t necessarily a bad thing, Barron’s argued earlier on Thursday, and could provide investors the chance to buy the dip.
Write to Sabrina Escobar at [email protected]