Costco Wholesale Corp. concluded its fiscal year with a mostly stable fourth quarter, demonstrating resilience in a challenging retail environment. The U.S. sales comparatives rose by 6.3%, while overall revenue reached $79.69 billion, slightly below analysts’ expectations. This performance reflects various market dynamics, both domestically and internationally, revealing that while consumers are cautious, they remain steadfast in their purchasing habits.
E-commerce has emerged as a significant driver of growth for Costco, with sales in this channel surging by an impressive 19.4% during the fourth quarter. Membership sales also saw a slight increase, hitting $1.51 billion as compared to $1.50 billion in the same quarter of the previous year. Notably, Costco finished the quarter with 76.2 million paid household members, marking a considerable year-over-year gain of 7.3%. This growth in membership showcases the strength of Costco’s value proposition in a time where consumers are looking for economical options.
A key point of interest for the upcoming first quarter of fiscal 2025 is the membership fee increase that took effect on September 1, raising the annual fee by $5. Despite concerns regarding potential pushback from members, CFO Gary Millership reassured stakeholders during the company’s earnings call, stating that the membership renewal rates remain stable. “We haven’t seen a significant member reaction,” he noted. This stability in renewal signifies that Costco’s ongoing efforts to provide value in terms of pricing and quality are resonating well with consumers.
In terms of operational enhancements, the recent implementation of membership card readers at the entrance of Costco stores has been effective in streamlining the checkout process. President and CEO Ron Vachris reported that this change has been positively received, facilitating quicker access for members. Improvements to the shopping experience continue to be a priority for Costco, both in physical outlets and online platforms, leading to sustained increases in sales.
Looking at the full fiscal year, data shows U.S. sales comparatives rose by 5% on an adjusted basis, while global comps grew by 5.9%. E-commerce sales experienced a robust increase of 16.2% for FY2024. Notably, location analytics from Placer.ai illustrates that visits to Costco’s physical stores also surged, showcasing a year-over-year rise of 10.6% in August alone. Such visitation growth indicates a healthy consumer interest and loyalty towards the brand, painting an optimistic picture for future performance, especially as the busy holiday season approaches.
An important trend noted by analysts at Placer.ai is the shift in consumer purchasing patterns. Millerchip pointed out that Costco members are increasingly inclined towards grocery shopping, as inflating prices prompt a re-evaluation of food spending habits. There’s a clear transition from dining out to preparing meals at home, with strong growth reported in fresh and ethnic food categories. This insight highlights Costco’s strategic advantage in the grocery sector as consumers seek value and variety amidst economic pressures.
Moreover, unconventional product offerings have also contributed to Costco’s stellar e-commerce performance. For instance, the demand for gold bars sold on the company’s website continues to climb, with sales figures seeing double-digit growth during the fourth quarter. This diversification of offerings not only enhances customer engagement but also solidifies Costco’s position as a versatile player in retail.
Costco’s ambitious expansion plans reflect its commitment to maximizing both digital and physical business avenues. With the opening of 30 new warehouses this year, the company now operates 891 locations, including over 600 in the U.S. and Puerto Rico, 108 in Canada, and 40 in Mexico. Being recognized as the third-largest food and consumables retailer in North America by Progressive Grocer showcases Costco’s significant footprint in the retail landscape, alongside its designation as one of the “Retailers of the Century.”
As Costco moves into fiscal 2025, the company’s ongoing navigation of retail challenges while enhancing member experience will be critical. By closely monitoring buying trends and prioritizing innovation in service delivery, Costco is well-poised to maintain momentum and consumer trust. Investors will undoubtedly keep an eye on membership growth and retention rates, particularly following changes in fee structures and shopping practices.
Costco’s adeptness in utilizing buyer insights, coupled with a strong focus on e-commerce and consumer engagement, positions it advantageously for continued success in an unpredictable retail landscape.
