Costco Wholesale Corporation (NASDAQ: COST) continued its strong performance from the second quarter into the third quarter. The retailer surpassed estimates on both the top and bottom line. Last week, the stock touched a new 52-week high of $251 and has increased 19% this year.

Q3 Performance

For the third quarter, adjusted comp-store sales grew 5.6%, compared to 7.7% reported last year. However, the metrics surpassed estimates of 5.48%. It’s worth noting that Costco has reported a same-store sales growth of 5% or above in the last two years.

US same-store sales came in at 5.5%, which failed to beat estimates of 5.62%. This resulted in the stock declining modestly by 1% in the after-market trading. Online sales brought in 19.5% of revenues, compared to 35.5% in the prior year period.

Revenue grew 7.4% to $34.74 billion and earnings per share increased 20.5% to $2.05, which includes a one-time tax benefit of 16 cents. Analysts were expecting sales of $34.67 billion and earnings of $1.82 per share. The retailer operated 773 warehouses worldwide, of which 536 is located in the US and 100 in Canada.

Costco Q3 2019 earnings infographic

Looking Back

Last quarter, sales improved 7.3% to $35.4 billion and profits rose 26% as a result of increased footfalls and online sales growth. Comp-store sales soared 5.4% backed by solid US sales of 7.4%. E-commerce sales continued its healthy growth reporting 20.2%.

Membership Fees

Membership fees is a major contributor to earnings for Costco. For the third quarter, it grew by 5.3% to $776 million. At the end of Q2, the company had 96.3 million cardholders and 52.7 million paid members. Renewal rates came in at 91% for the US and 88% for the firm.

The warehouse retailer sells merchandise to its members through its warehouses at lower prices, resulting in more customer visits and increased spending per customer.

Tough Macros

The retail industry has been facing tough headwinds due to falling traffic in malls, changing consumer habits, intense competition from e-commerce giants like Amazon (AMZN) and Walmart (WMT). The most impacted are the firms which have most of their stores located in malls like L Brands, Lowe’s, Gap and J.C. Penney.

Adding to their woes, the ongoing trade war would result in increased costs for imports from China which would further dent their performance. It’s high time for retail firms to revamp their strategy in line with changing trends expectations and improve the customer experience to increase footfalls.

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