Are Costco Members Still Buying in Bulk?

Costco Wholesale (NASDAQ:COST) shares received a price check as the company reported better-than-expected financial results for the first quarter of fiscal 2013. Despite a hike in membership fees last year, consumers continue to buy in bulk.

How Good Are the Earnings?

Costco reported that net earnings surged 30 percent to $416 million (95 cents per share) for the twelve weeks ended November 25, 2012, compared to $320 million (73 cents per share) for the same period a year earlier.

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The largest membership warehouse club in the United States also announced a 9.6 percent increase in total revenue to $23.7 billion, compared to $21.6 billion last year. Last November, Costco hiked membership fees for the first time in five years by 10 percent in the U.S. and Canada, but revenue from membership fees jumped 14 percent to $511 million in the first quarter, signaling that the price increase did not significantly slow down renewal rates. However, membership growth was slower than the previous quarter.

Excluding inflation in gasoline prices and strengthening foreign currencies, total same-store sales for the quarter increased 6 percent in the U.S. and 7 percent international. The operating margin improved to 2.8 percent, compared to 2.6 percent in the same quarter last year.

Analysts were pleased, but shareholders may be booking profits…

Did the Results Beat Expectations?

Overall, Wall Street was pleased with Costco’s latest financial results. Analysts polled by Thomson Reuters expected earnings of 93 cents per share, with revenue of $23.6 billion. Although, BMO Capital Markets expected membership fee revenue to total $534 million, which is $23 million higher than the actual amount.

What is the Value to Shareholders?

Shares of Costco jumped about 1 percent after the quarterly numbers, but shares gave up a portion of those gains shortly thereafter. Investors may be booking some profits, as shares have gained about 18 percent year-to-date.

Sanford Bernstein analyst Colin McGranahan explains, “While results were solid and clean in absolute terms, we believe this was largely inline with expectations and unlikely to meaningfully move the stock,” according to Reuters.

As the chart below shows, Costco has experienced a relatively stable rise over the past five years, rising more than 40 percent, which places it among other retailers such as Wal-Mart Stores (NYSE:WMT) and Big Lots (NYSE:BIG). Meanwhile, it has easily outperformed Target (NYSE:TGT) and Sears Holdings (NASDAQ:SHLD).