Costco Wholesale (COST) Q3 2024 Earnings Report

Revenue and profitability
- Revenue (Q3 2024): $58.515B vs. prior-year period (YoY) decline reflected in reported YoY metric (-25.87% per earnings metrics, though press materials cited a YoY increase in net sales for the quarter in the call narrative). 12-week period with 16 weeks in Q4 guidance noted. QoQ growth: 0.12% per quarterly metrics.
- Gross profit: $7.342B; gross margin 10.84% (YoY margin up 52 bps; core margin flat to +2 bps excluding gas).
- Operating income: $2.197B; operating margin 3.75% (flat-to-modest improvement YoY excluding gas effects).
- Net income: $1.681B; net income margin 2.87%; EPS (diluted): $3.78.
- SG&A: $5.145B; SG&A ratio 8.96% (improved about 15 bps YoY); core SG&A benefited from higher labor productivity and cost discipline.
-Cash flow and balance sheet
- Net cash from operating activities: $2.999B; free cash flow: $1.937B.
- Capex: $1.062B in Q3; full-year 2024 capex guidance reaffirmed at $4.3–$4.5B.
- Balance sheet: cash and equivalents $10.404B; total current assets $33.288B; total assets $67.911B; total liabilities $46.14B; total equity $21.771B; net debt position: -$1.107B (net cash).
- Liquidity and returns
- Dividends: payout ratio ~30.6%; executives repurchased stock totaling $162M in the quarter; ongoing capital allocation focused on value delivery to members and growth through select openings and digital investments.
Key member metrics and mix
- Paid households: 74.5M; cardholders: 133.9M; renewal rate US/Canada: 93% (up 0.1 ppts QoQ); worldwide renewal: 90.5% (unchanged QoQ).
- Executive members: 34.5M, ~46% of paid members and ~73.1% of worldwide sales.
- Traffic and ticket
- Worldwide shopping frequency: +6.1% YoY; U.S. traffic +5.5%; average ticket +0.5% globally (+0.7% in U.S.).
- E-commerce: +20.7% comp sales; strong online momentum supported by app growth (+32% YoY; 2.5M new downloads in the quarter; total downloads > 35M).
- Gas and FX impact: fx headwinds ~20 bps; gasoline price inflation added ~30 bps to sales.
Operational themes and forward-looking indicators
- Store expansion and capex: opened two U.S. warehouses in Q3, with two more openings post-quarter; guidance for 12 openings in 4Q24 (9 in U.S., 2 in Japan, 1 in Korea); net 29 new warehouses for the year.
- Non-foods strength: highest comp in core categories; momentum driven by quality items with strong member resonance; continued deflation in non-foods (hardware, sporting goods, furniture) aided by lower freight costs.
- Kirkland and value strategy: ongoing price reductions and new Kirkland items (e.g., walking shoe, facial wipes) delivering incremental value; aim to provide at least 20% value vs national-brand equivalents when price value is challenged.
- Digital and logistics: Costco Logistics growth +28% in deliveries; Costco Next added eight vendors (75 total); app downloads >35M; Uber Eats expansion to Canada and 17 U.S. states; cross-border growth potential and international expansion.
- Inflation environment: inflation across core merchandise is flat; fresh categories near zero; some deflation in non-foods offset by e-commerce gains; strategy remains to deliver incremental value to members through price discipline and selective assortment changes.

Key management insights from the Q3 2024 earnings call:
- Strategy and guidance cadence: Gary Millerchip emphasized ongoing guidance for a potential membership fee increase, noting a willingness to adjust timing as value delivery to members is assessed; “there's nothing about anything that we see within how the business is performing that's changing our view on that,” underscoring disciplined, data-driven pricing conversations.
- US expansion runway and capital allocation: Gary Millerchip noted “we still see significant runway to continue to open more warehouses in the future,” highlighting a persistent U.S. expansion opportunity alongside international growth.
- Digital, logistics and data monetization: Ron Vachris and Gary emphasized opportunities in technology and data, including enhanced digital experiences, the expansion of Costco Logistics (delivering value with installation/haul-away), and Costco Next as a curated marketplace for member value.
- Price discipline and member value: both executives reiterated a commitment to delivering value through price reductions where possible and runoff of value to members, with 90%+ member retention and a focus on executive membership driving disproportionate sales.
- Inflation and assortments: the team described inflation as “flat” across core merchandise, with deflation in non-foods offset by e-commerce growth and higher efficiency in freight; emphasis on Kirkland Signature items to maintain value leadership.

Costco remains a high-quality, defensible growth franchise with entrenched member loyalty and a diversified mix of core retail, services, and digital platforms. The Q3 results show solid profitability and an expanding suite of leverageable capabilities (Costco Logistics, Costco Next, Uber Eats, and enhanced e-commerce). The stock trades at premium multiples (approx. P/E around 51x and EV/EBITDA near elevated levels), reflecting predictable cash flows, strong balance sheet, and a long-term growth runway. Key catalysts include continued U.S. infill expansion, international market penetration, and monetization of digital channels and retail media, all while maintaining a member-first pricing discipline. Risks revolve around macro consumer weakness, commodity/FX volatility, and execution risk in rapid capex deployment. Our view is to maintain a constructive stance with selective exposure, anticipating that gross and operating margins can trend higher on efficiency gains and better mix, provided the company successfully leverages its data, technology, and logistics advantages to sustain member value and convert engagement into higher spend per member. Monitor membership fee timing as a potential lever to fund value-generating initiatives without compromising member loyalty.