Costco Wholesale Corp. (COST, Financial) reported strong third-quarter earnings after the market closed on Thursday.
The Issaquah, Washington-based wholesale retailer posted earnings per share of $1.70, topping Thomson Reuters’ estimates by a hair. Analysts were expecting $1.69 per share.
Quarterly revenue grew 12.1% year over year to $32.4 billion, surpassing expectations of $31.9 billion. This also marks the company’s fourth consecutive quarter of double-digit revenue growth.
Same-store sales, excluding changes in gas prices and currencies, grew 7% during the quarter, with U.S. comps up 7.7%. This beat analyst estimates of 5.4% growth.
Driven by its large investments in online and delivery services, Costco’s e-commerce sales saw a 35.5% increase while revenue from membership fees climbed 14%.
During the earnings call, Chief Financial Officer Richard Galanti commented on these initiatives, saying the company anticipates site traffic conversion rates and orders will continue to improve.
“We have been helped, of course, by improved member service and better search and checkout and returns processes, but, first and foremost, we’re delivering greater value to members and more people are actually are looking at it, opening their emails and transacting,” he said. “This stuff works and we will continue to see – we believe – some good results there.”
As a consequence of cutting prices to lure customers away from Amazon (AMZN, Financial) and higher shipping costs, however, Costco’s gross margin slipped 46 basis points to 11.05%. In fiscal 2017, the retailer’s gross margin was 13.3%.
Galanti also announced Costco is increasing its starting wage for U.S. employees by $1 to $14 and $14.50 per hour, effective June 11. The wage increase is projected to result in higher annual pre-tax costs of $110 million to $120 million, with the fourth quarter taking a $25 million hit.
Costco, which closed at $198.24 on Thursday, tumbled more than 2% in after-hours trading. The selloff carried over into Friday morning, with the stock down 1.35% at $195.56.
GuruFocus estimates the stock has climbed approximately 4% year to date.
Disclosure: No positions.
