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Costco misses estimates for first quarter results

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ISSAQUAH, Wash. — Costco Wholesale Corp. posted gains in first quarter sales and profits, but they fell short of analysts’ estimates.

Adjusted earnings per share of $3.07 in the quarter ended November 20 were up from $2.98 a year earlier, but missed Wall Street’s forecast of $3.11 per share.

Sales were $53.44 billion, up 8.1% from $50.36 billion a year ago. Analysts had predicted sales of $58.36 billion.

The company’s same-store sales increase of 6.6% did top analysts’ estimate of 6.4%, but the gain was down sharply from the previous quarter’s 13.7% rise. And first quarter e-commerce sales slid 3.7%.

Net income for the quarter was $1.364 billion, up from $1.324 billion last year. This year’s results included a charge of $93 million pretax, 15 cents per diluted share, primarily related to downsizing charter shipping activities, and a tax benefit of $53 million, 12 cents per diluted share, related to stock-based compensation. Last year’s results included a write-off of certain information technology assets of $118 million pretax, 20 cents per diluted share, and a tax benefit of $91 million, 21 cents per diluted share, related to stock-based compensation.

Costco’s merchandise costs rose about 9% to $47.77 billion as it grappled with higher freight and labor costs.

The warehouse club operator’s quarterly revenue from memberships, priced between $60 and $120 a year and which accounts for most of its gross margin, climbed to $1 billion from $946 million.

The results magnified investors’ concerns raised by a weaker-than-expected November sales report.

The sluggish sales contributed to the company’s second straight quarter of margin compression. Gross margin decreased 45 basis points, or 0.45 percentage points, executives said.

Costco had performed solidly in 2021 and 2022, remaining popular with high-end customers even as inflation led some consumers to retrench on discretionary spending. Over the last several weeks, however, sales started to slow as rising prices continued to squeeze family budgets.

The biggest fall-off was in big-ticket and discretionary purchases, said chief financial officer Richard Galanti. He estimated that inflation for Costco’s goods was between 6% and 7% in the quarter on an annual basis. While that was an improvement over the 8% inflation of the previous quarter, it remains higher than historical levels.