Costco reports earnings miss, declining sales despite increased traffic

Yahoo Finance food reporter Brooke DiPalma breaks down Costco earnings, consumer spending decreasing, and the company's membership revenue.

Video transcript

- Switching gears. Let's take a look at some earnings. Shares of Costco in focus this morning. Stock rangebound after earnings yesterday missed Wall Street estimates. The drop fueled by slower than expected sales growth. Small drop in the stock price as shopper demand for discretionary items weakened. Yahoo Finance's own Brooke DiPalma joins us now with the details. Take us through it.

BROOKE DI PALMA: That's right. Good morning. While same store sales were up about 3 tenths of a percent compared to Wall Street estimates of up nearly 3%. Now here in the US, that number actually dropped about a tenth of a percent versus expectations of up nearly 2.4%. Now the key takeaway's that impacted those numbers, foot traffic or shopping frequency.

The CFO said it, quote unquote, remains pretty good. It was up about 4.8% worldwide. And here in the US, up about 3 and 1/2 percent as inflation remains and consumers look for value. They do in fact overindex to higher end income consumers. Now you do have to note though, that those consumers that are shopping while they're going in store, they're actually spending less while were there. We saw the average taken down about 4.2% across the globe, and down 3 and 1/2 here in the US.

As we hear from other companies like Walmart like Home Depot, consumers are moving away from discretionary items and towards more packaged food and groceries. We saw that once again, and detailed here in Costco results. And the last thing to note here, e-commerce sales down 10%. Once again, they are moving away from big discretionary items. That was about down 20% in e e-commerce sales. But big discretionary items did make up more than half of e-commerce sales.

In addition to that, it's important to note here that Costco enjoys people coming in store. They do say that they see more of a benefit of people coming in store as opposed to buying online. They said that online sales comes at a cost there, but they do plan to grow incrementally as far as e-commerce goes. And they do have delivery partners as of now. Like they call the big kahuna partner there, Instacart at Costco.

- And I was looking at membership fee revenue. It did rise about 6.1% year over year, but it was in line or a slight miss of estimates. And we keep looking for them to maybe raise those fees.

BROOKE DI PALMA: Right. Well, it's not happening anytime soon yet, Julie. So Wall Street, Main Street certainly keeping an eye on that. And they did once again emphasize that it's not happening any time soon. Now they typically do raise it every five years, which would bring us to now. But on the call, UBS analyst Michael Lasser said, wouldn't it make sense to raise your fees right now? Because your renewal rates have been so high, once again, up 6.1% year over year. And you're providing even more value in the typical environment.

The CFO Richard Galanti said, nice try Michael. At some point we will, but not now. Take a listen.

RICHARD GALANTI: Our view right now is that we've got enough levers out there to drive business. And we feel that it's incumbent upon us to be that beacon of light to our members in terms of holding them for right now. It's not a matter of big time, but we'll let you know as soon as we know.