Costco's (NASDAQ: COST) recent earnings report contained some of the best sales and profit figures that investors have seen out of the warehouse giant in years. In that way, the company didn't stand out much from peers like Walmart and Target, which each just closed the books on an unusually strong fiscal 2018.
Yet Costco's success went well beyond just its 7% sales jump and 27% net income spike. Let's look at a few of other standout metrics from its latest report.
Image source: Getty Images.
Customer traffic growth: 5.9%
Costco's 7% comparable-store sales improvement kept it near the top of the industry in revenue gains, mainly thanks to surging customer traffic. Transactions were up 4.9% to mark just a slight deceleration from the prior quarter's 5.2% jump. Walmart's comparable figure was 0.9% and Target's landed at 4.5%.
Membership renewal rate: 90.7%
Arguably the best news for the business in recent quarters is the fact that Costco's membership renewal rate is climbing toward record highs. That success is combining with higher membership fees to significantly lift profits.
This positive trend accelerated in the fiscal second quarter, with members renewing at a 90.7% rate compared to 90.5% in the prior quarter. Globally, subscribers are reupping their memberships at an 88.3% rate versus 88% three months ago.
Gross profitability: 11.28%
Investors had been worried that Costco might post lower profitability as prices climb on its merchandise and transportation and freight costs increase. That didn't happen -- in fact, gross margin increased by 30 basis points to 11.28% of sales. In a conference call with analysts, executives credited strong pricing in several sales categories and a boost from the e-commerce channel for lifting that result.
The company also kept a tight lid on selling expenses despite higher wages. As a result, operating income rose to $2.15 billion, or 3.12% of sales, from $1.97 billion, or 3.1% of sales.
Stock buyback spending: $117 million
Executives became more bullish on Costco's stock this quarter, spending $117 million to repurchase shares at an average price of $209. The company had spent $35 million in the prior quarter and directed $322 million toward this cash return channel in fiscal 2018.
February traffic growth: 3%
CFO Richard Galanti went into more detail about the most recent sales pace in the earnings call. Costco's press release revealed a slowdown to 5% comps growth even after adjusting for foreign exchange rate shifts. Sales in the key U.S. region slowed to 5.7% from 7.4% in the prior quarter.
However, a few temporary trends combined to make that result look weaker than it really is. Unusually wet weather pushed comps lower by about a percentage point in the U.S., management estimates, and the timing of Chinese New Year depressed international sales to the tune of nearly 5 full percentage points. Costco also blamed cannibalization, or the shifting of sales from established stores to newer ones, for depressing growth slightly.
Despite all these issues, the warehouse retailer still posted solid customer traffic growth both in the U.S. and internationally in the month of February. Thus, its impressive momentum appears set to continue into the company's fiscal third quarter.
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