Costco Wholesale Corporation (COST 2.58%) operates the second-biggest warehouse club retail chain in America -- but it publishes some of the shortest earnings reports on the planet. Its Q3 2022 earnings release, for example, was less than 200 words of text and a few financial charts. (For comparison, this article will be twice as long).
Even such a short report was long enough to make one thing clear: 28% of Costco's sales growth this past quarter came from the sky-high price of gasoline.
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Costco by the numbers
As Costco reported on Thursday, it grew its total sales 16.3% in the fiscal third quarter of 2022. Only about 1.4 percentage points of growth came from opening new stores, though. The other 14.9 percentage points were from sales at Costco locations that had already been open a year or more -- called same-store sales or comparable-store sales, as Costco calls them.
But here's the really interesting thing: "Gasoline price inflation positively impacted sales in the quarter, just a little bit more than 5%," according to Costco management. So out of 14.9 percentage points of same store sales growth, the inflation that is causing gas prices to rise accounted for at least five of those points. Put another way, 33.6% of Costco's same store sales growth came from gas getting more expensive.
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And yet, while not cheap, Costco still markets its gasoline as cheap-er than the gas sold at stations near its stores -- and that strategy seems to have worked out swimmingly in Q3. Gasoline purchases were so popular, in fact, that Costco Senior VP in charge of Investor Relations Robert Nelson, who ran the company's conference call, placed gasoline sales at the top of the list of Costco's "best performers" in "other business" -- i.e. its best-selling category outside of retail goods.
You might think that would be good news for Costco, but it wasn't. In fact, as Nelson explained, Costco's gross profit margin declined by 99 basis points (about 1%) in Q3 -- with about half of that decline due to "the negative impact of gas inflation." Clearly, gasoline served in the role of loss leader for Costco this past quarter, depressing the amount of profit per dollar of revenue collected. Regardless, it helped to bring in a lot more revenue dollars.
Now here's the good news: It still all worked out pretty well for Costco in the end. Profits for the quarter came in at $3.04 per share, 10.5% better than what Costco earned a year ago and $0.01 ahead of analyst predictions. Thanks in large part to high gas prices, Costco beat earnings estimates.
