The good news today is that Costco (NASDAQ:COST) is not raising the price of its $1.50 hot dogs. The bad news is that the big-box retailer’s margins took a hit in its latest quarter. This initially had COST stock creeping lower in morning trading.
Despite some margin pressures, Costco managed to post quarterly revenue that beat analyst estimates. Specifically, it announced that total revenue rose 16% to $52.6 billion, compared with estimates of $51.55 billion. Costco also announced that it earned $3.17 per share, which also beat forecasts for $3.03 in earnings per share (EPS).
The overall earnings beat is the reason COST stock is not lower today and is faring better than competitors such as Walmart (NYSE:WMT) and Target (NYSE:TGT) that disappointed across the board with their recent earnings prints.
So far this year, COST stock has declined 18%.
What Happened With COST Stock
Costco reported a decline in its gross margins, saying soaring freight and labor costs hurt its business. Throughout this earnings season, American companies have reported that they are struggling with higher costs due to ongoing supply chain disruptions.
In its earnings release, Costco said it is continuing to increase prices in certain areas to help offset the impact of inflation that is running at a 40-year high in the U.S. However, not only is Costco leaving the price of its popular hot dogs at a $1.50, its efforts to keep gas prices below the national average have driven a spike in its memberships in recent months.
Additionally, Costco said products under its private-label Kirkland brand continue to sell well. Net sales jumped 16.3% to $52.6 billion during the most recent three-month period.
Why It Matters
Costco’s quarterly results were better than competing retailers such as Walmart and Target that saw decades-high inflation hit their profits much more directly. While it isn’t immune to cost pressures, Costco’s latest earnings show that the retailer remains largely resilient.
With the bulk of Costco’s profits coming from its membership model, the big-box retailer seems better positioned than its rivals to keep product costs down for customers. However, things could change in the near future. The retailer already has hinted that it could hike membership fees this summer.
What’s Next for Costco
COST stock is climbing slightly today as investors digest the latest financial results from the Seattle-based company. While the decline in gross margins is a bit concerning, overall, Costco posted a very strong quarter that showed it continues to be a dominant retailer.
Long term, the company and its shareholders should be just fine.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
