Costco reports earnings beat, squeezed margins
Yahoo Finance Live anchors discuss fourth-quarter earnings for Costco.
Video Transcript
[AUDIO LOGO]
JULIE HYMAN: Shares of Costco. We're watching those after the company reported fourth-quarter results that did come in slightly better than estimates, but the shares are down 2%. Costco noting, a contraction in gross margin for the quarter that pricing pressures from higher commodity, prices, wages, and transportation costs.
And what's interesting about this report, in particular, is that I think expectations, safe to say, we're running pretty high for Costco. This is a company that's seen as best-in-class and also poised to benefit, as we do see maybe an economic downturn. It's seen as a value play so people are gonna go there. Maybe rotate to Costco from elsewhere so it would see a bigger share of the dollars. But then what it's going to cost Costco causing a little bit concern among investors.
BRAD SMITH: Yeah, and that showed up a little bit in their merchandise inventory. That was up by about 20-- 26% in this most recent quarter. But yeah, to your point, and from what we've heard from many of the analysts who we've discussed this very matter with, bulk tends to be-- and bulk-buying tends to be one of the categories where consumers will flock to, to see a little bit of some of the easing of the pain when they are in kind of this cost-cutting mode or at least in restricting exactly how much inventory that they are buying to be able to hold on for a long period of time.
It really just comes down to this idea of shelf life. And having an item that's either in the pantry or having-- or the ability to stock up and not pay a higher-per-unit cost. And that's where a company in Costco typically has one of the fanfare or favorability, rather, among the consumer consortium during an economic downturn.
It was interesting, though, in the best performing categories in the quarter-- candy, frozen kiosks-- frozen foods, rather, kiosks, tire, lawn and garden, jewelry, toys, bakery, and deli. All of that spells out little luxuries as of right now, too. So--
JULIE HYMAN: Well--
BRAD SMITH: You're working on the lawn. You're working on the garden.
JULIE HYMAN: Yes.
BRAD SMITH: You're playing with toys, perhaps. And then additionally, some of the other categories that you perhaps may be dabbling more in the DIY.
JULIE HYMAN: Right. One more thing to mention, there's not a fee increase coming. Not yet--
BRAD SMITH: Not yet, yeah.
JULIE HYMAN: --at least. This is something, Sozz, I don't know if you're watching out there. This is something, I think, you had predicted that there would be a fee increase. But it's not happening yet. The CFO did say on the call, it is a question of when, not if, for that fee increase. And the company does raise them-- raise membership fees every five to six years. So they would be due to do so. The last one was in 2017.
[WALL STREET BELL RINGING]
And we've got the opening bell now on Wall Street on this Friday. It's been a down week, as we talked about. Already going into today with a decline of about 3% on the week.
And we've got representatives of the Nelson Mandela Foundation ringing the opening bell here today. And as we've talked about, it's United Nations Week here in New York. A lot of nonprofits, a lot of global NGOs are in town. And undoubtedly, that's why the folks from the foundation are here as well.
BRAD SMITH: Yeah, certainly.
