Costco Wholesale’s profit rose more than expected in the first quarter and the warehouse retailer returned to same-store sales growth despite lower food prices.
Net income increased nearly 14% from a year ago to $545 million, producing earnings of $1.24 per share. Net sales rose 3.2% to $27.5 billion, with membership fees surging to $630 million from $593 million.
Analysts had forecast earnings of $1.19 a share on $28.3 billion in revenue.
The results included a $51 million, or $0.07 per share, benefit from a legal settlement and profit was also boosted by higher margins on fresh food items such as produce and prepared foods and lower fees to credit card partner Visa.
“Even Costco has had challenges to overcome recently, and coming into its fiscal first-quarter financial report on Wednesday night, Costco investors were hoping that the company would be able to keep producing modest single-digit percentage gains in sales and earnings,” The Motley Fool said. “The company succeeded on both fronts.”
As The Wall Street Journal reports, “deflation is taking a bite out of many retailers’ sales,” with lower prices on eggs, meat and other food. But Costco’s same-store sales rose 1% in the first quarter as customers shopped more frequently, the first increase in three quarters and a turnaround from a 1% decline a year ago.
The company opened eight new locations during the quarter, expanding its network to 723 warehouses in nine different countries, in addition to its e-commerce websites throughout North America and in the U.K., Korea, and Taiwan.
Costco’s online sales in the fiscal first quarter rose 8%, a slower rate than the overall e-commerce market. The company “has been more blunt than competitors that it prefers shoppers to come to stores where impulse purchases are more likely,” the WSJ noted.
In trading Thursday, Costco stock rose 2.4% to $157.59. “If Costco can keep executing on its successful business model, then it appears to have the resiliency necessary to hold off competitors in the e-commerce world and keep generating impressive profits well into the future,” The Motley Fool said.