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Inflation: Costco says some prices are 'starting to fall'

Costco's vast aisles of bulk food may feel a little less pricey to shoppers in the months ahead.

The warehouse beast told analysts on its earnings call late Thursday that inflation in the most recent quarter was in the 5%-6% growth range, which marked a slowdown from the 6%-7% level seen in the preceding quarter.

Costco CFO Richard Galanti added that inflation growth cooled further toward the end of the quarter.

"We continue to see some improvements in many items," Galanti explained. "Commodity prices are starting to fall — not to back to pre-COVID levels ... but continue to provide some relief — things like chicken, bacon, butter, steel, resin, nuts."

A Costco employee cooks chicken at Costco in Mountain View, Calif., Wednesday, March 3, 2010. Many retailers are reporting solid sales gains for February, even in the face of falling consumer confidence and heavy snowstorms that hammered the East Coast. (AP Photo/Paul Sakuma)
A Costco employee cooks chicken at Costco in Mountain View, Calif., Wednesday, March 3, 2010. (AP Photo/Paul Sakuma)

Still high levels of inflation and an uncertain macro economy weighed on quarterly sales of larger ticket items such as TVs.

The company also saw operating profit margins drop to 3.44% from 3.49% a year ago amid inflation in various expense lines.

Pros, meanwhile, think that any easing in inflation for Costco this year could help stoke sales of more expensive products while providing relief on expenses, thereby boosting profits.

That would be another reason to be bullish on Costco's stock.

"While not immune to softer discretionary spending, Costco is still adding new members, winning share, and prioritizing member loyalty," EvercoreISI analyst Greg Melich wrote in a note. "Costco's sticky membership growth, record renewal rates, strong execution, and dual catalyst path keep it a core Fab Five top pick in a decelerating U.S. retail landscape."

Costco isn't alone in calling out long-sought inflation relief.

The number of S&P 500 companies calling out inflation on earnings calls thus far has dropped 20% quarter-over-quarter this reporting season, according to data from FactSet.

"The freight costs for sure [have eased]," Abercrombie & Fitch CEO Fran Horowitz said on Yahoo Finance Live (video above). "That's a much more immediate push that we're seeing. We're feeling those effects immediately. Cotton [prices] is a little bit different. Cotton is a much more longer lead time. So our expectation is to see some of those costs abate in the back half."

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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