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3 Standout Numbers From Costco’s Earnings Release | The Motley Fool

Costco (NASDAQ:COST) recently closed out its fiscal 2021 in impressive fashion. The warehouse retailer beat Wall Street expectations on sales and earnings despite several major headwinds, including soaring inflation and supply chain bottlenecks.

In a conference call with Wall Street analysts, executives broke down those hits and misses while sounding a generally positive tone about the new fiscal year ahead. Let’s look at a few standout figures from that presentation.

Image source: Getty Images.

1. Renewal rate: Up 0.3 percentage points

While Costco books nearly $200 billion in annual revenue, its more helpful to think of its business as a subscription club rather than a retailer. Membership fees account for most of its earnings each year, after all.

That’s why the subscription renewal rate is arguably the most important single metric Costco reports each quarter. A healthy and rising rate here demonstrates customer satisfaction and lays the groundwork for fee increases over time.

That rate rose to 90.3% in the core U.S. market and 88.7% worldwide. Both figures were up 0.3 percentage points compared to three months ago and are close to record highs. CFO Richard Galanti said part of that success can be pinned on automatic renewals, and on the increasing penetration of its premium, executive level membership tier. Costco added over 1 million of these customers in the fourth quarter, which helped push fee income to $1.2 billion from $1.1 billion a year ago.

2. Inflation: up to 4.5%

Costco’s estimate of cost inflation keeps marching higher. Executives two quarters ago said overall price hikes were running at about 1%, before they lifted that prediction to between 2.5% and 3.5%. Today, that boost is ranging from 3.5% to 4.5% and touches everything from fresh produce to dairy, meat, and home consumable products like trash bags, plastic wrap, and aluminum foil.

Costco thrives in this type of environment because it can use its massive sales base to keep prices lower than rivals. Inflation helps highlight the warehouse giant’s price leadership position, too, which supports shopper satisfaction.

That helps explain why management was proud to report having kept prices down despite soaring costs. “We elected to hold, delay, and/or mitigate some of the price increases in this increasingly inflationary environment,” Galanti said.

3. Shipping container costs: up 500%

The global shipping industry is still far from normal operations, with retailers today scrambling to secure enough products ahead of the holiday shopping season. Executives said in some cases they’re being charged six times the regular rate for shipping containers.

Costco is responding to this historic supply chain stress by increasing lead times for ordering. It has also purchased its own vessels, with three ships on lease to carry its own merchandise exclusively over the next year. This “Costco fleet” can move as many as 30,000 containers between Asia, the U.S., and Canada in that time. “It’s a lot of fun right now,” Galanti joked.

The good news is that Costco seems to be using its competitive advantages like scale to navigate through this challenging environment better than most of its peers. That success is helping it win more market share and a growing base of highly satisfied members. And higher earnings tend to flow directly from those sales wins. “We are a top-line [focused] company,” Galanti said, “and everything else will take care of itself.”

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


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