Shares of membership-based warehouse chain Costco Wholesale (COST 1.01%) took a step back on Friday after the company reported financial results for its fiscal second quarter of 2024. Sales came in a little lighter than analysts expected. And this is a primary reason that Costco stock was down 5% as of 10 a.m. ET.
Costco's membership numbers are strong
Among publicly traded companies, Costco has one of the oddest fiscal calendars with its fiscal Q2 ending on Feb. 18. During the 12 weeks leading up to Feb. 18, the company generated total revenue of $58.4 billion, up a healthy 5.7% year over year. But Wall Street had expected just a little more.
Disappointment regarding Costco's top line may be overblown. Those who invest in Costco stock should know that 98% of its revenue comes from low-margin retail sales whereas the remaining 2% is from its membership fees. Missing expectations on retail sales isn't a big deal considering it's not too profitable anyways.
Costco's membership numbers were healthy. At the end of Q2, the company had 73.4 million paid household members, which was up nearly 8%. Moreover, renewal rates were strong.
Due to the strength in its member numbers, Costco's Q2 diluted earnings per share (EPS) of $3.92 were actually better than expected.
The silver lining for Costco
There is one more factor that could be on investors' minds today. As mentioned, Costco makes most of its profit from its membership fees. Investors have been expecting an increase to its membership fees because it hasn't raised them since 2017. However, Costco still didn't announce anything.
Before today's step back, shares of Costco were up more than 60% in the past year -- I think a step back is healthy. And the bright side is that Costco grew its EPS by nearly 19% even without an increase in membership fees. When the company finally does decide to raise prices, that would be an additional boost to profitability and a potential catalyst for the stock.
