Costco Misses Quarterly Revenue Estimates as Demand Slows for Discretionary Goods

Costco Wholesale Corp missed second-quarter revenue estimates, as consumers turned frugal on discretionary spending amid persistently high inflation.

Major U.S. big-box retailers are seeing a slowdown in demand for discretionary items such as toys, electronics and home goods as higher interest rates and surging food prices force consumers to look for more needs-based consumable goods that are pocket-friendly. “We’ve seen some weakness in what I’ll call big-ticket discretionary items,” said finance chief Richard Galanti, adding electronics, jewelry and housewares, among others, were the worst performers in February and in the reported quarter.

Several U.S. retailers have in recent weeks commented on how Americans have been changing their shopping patterns and seeking out more bargains and discounts as they deal with inflation levels that haven’t been seen in a generation.

The company’s total revenue for the quarter rose 6.5% to $55.27 billion, but fell short of estimates of $55.54 billion, according to Refinitiv data. The membership-only retail chain’s mixed quarterly results “indicates that sales growth possibly hasn’t kept pace with inflation and consumer traffic,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.

Net income attributable to Costco rose to $1.47 billion, or $3.30 per share, in the quarter ended Feb. 12, from $1.30 billion, or $2.92 per share, a year earlier. Costco’s quarterly revenue from memberships, priced between $60 and $120 per year and which account for most of its gross margin, rose to $1.03 billion from $967 million a year earlier.

To view the full release, visit the Costco website. 

Source: Reuters
Source: Costco

Best Buy Reports Fourth Quarter Results, Plans on Closing Up to 30 Stores This Year

Best Buy reported fourth-quarter revenue of $14.7 billion, down nearly 10% year over year. Consumers still feel economic and inflationary pressures, which the company said contributed to a decrease in its domestic revenue to $13.5 billion, down nearly 10% year over year. Growth in gaming and tablets offset comp sales declines in home theatre, appliances and mobile phones. 

The company’s fourth-quarter domestic gross profit was $2.9 billion for the three months ended Jan. 28. The company reported operating income of $597 million, down nearly 26% year over year. Comparable sales declined 9.3%. 

CEO Corie Barry told analysts that the fourth quarter’s promotional environment “was more intense than last year” but that related financial pressures were less than expected, contributing to a stronger gross profit rate performance.  Inventory in the fourth quarter was down 14% year over year, but was in line with the company’s sales trajectory versus the pre-pandemic 2020 fiscal year. 

In its fiscal year 2024 guidance, Best Buy projects revenue of $43.8 billion to $45.2 billion, a comparable sales decline of 3% to 6% and capital expenditures of about $850 million. Barry said on an earnings call that fiscal 2024’s macroeconomic environment will likely result in another down year for the consumer electronics industry, but 2023 is likely to be the bottom of the decline in tech demand. Barry also said the company’s plans for 2024 include closing 20 to 30 large format stores, implementing eight Experience store remodels, and opening about 10 additional outlet stores.

To view the full results, visit the Best Buy website. 

Source: Retail Drive
Source: Best Buy

Lowe’s Forecasts 2023 Sales Below Market Expectations Due to Sagging Demand

Lowe’s reported that fourth-quarter net sales grew 5.2% year over year to $22.4 billion. The fourth quarter of 2022 consisted of 14 weeks, versus 13 weeks last year, resulting in a $1.4 billion boost to sales this year. Total comparable sales fell 1.5%, while U.S. comps fell 0.7%.

The home improvement retailer’s operating income declined nearly 8% year over year to $1.7 billion, while its net income fell 20.6% to $957 million, according to a company press release. For the full year, Lowe’s reported net sales increased 0.8% from 2021 to $97 billion, while operating income decreased 16% and net income fell 24%.

Lowe’s has been steadily working to attract more pros, a customer segment that Home Depot has historically held an advantage with. Lowe’s executives said that pro customers continued to outpace DIY customers in the fourth quarter, reporting that this marked the 11th consecutive quarter of double-digit growth in the U.S. In the segment, the retailer delivered U.S. growth of 10% and 36% on a two-year basis, CEO Marvin Ellison said on a call with analysts.

Lowe’s, like other home improvement retailers, benefited over the past several years amid a housing boom and an uptick in consumers taking on projects around the home. But as consumers pull back on discretionary spending in the face of inflation and other economic uncertainty, the sector is seeing that momentum fade.

For the year ahead, Lowe’s expects total sales to be between $88 billion and $90 billion, while comps are projected to be flat to down 2% year over year. Operating margin is expected to be between 13.6% and 13.8%, and Lowe’s estimates capital expenditures of up to $2 billion.

To view the full release, visit the Lowe’s website. 

Source: Globe and Mail
Source: Retail Drive
Source: Lowes

Target Profits Continue to Slide as Discretionary Purchases Slow

Target achieved comparable sales growth in Q4 despite a challenging economic environment. CEO Brian Cornell said strength in food and beverage, beauty and household essentials offset softness in discretionary purchases.

However, the retailer’s profits continued to slide, with operating income down more than 50%. The retailer said higher freight, and supply chain costs, along with increased compensation and headcount in distribution centres drove its full-year gross margin rate down to 22.7% from 25.7% year over year.

“If you had told me in late 2020 during the height of the pandemic that 2022 would be the most challenging operating environment in my career, well, I would have assumed you were joking,” COO John Mulligan said. Looking ahead, “our environment remains volatile and we expect 2023 will have its own unique set of challenges.”

In its first quarter guidance, Target said it expects comp sales to range from a low single-digit decline to a low single-digit increase, and an operating income margin rate of 4% to 5%.

Christina Hennington, Target’s chief growth officer, said the company is taking a “cautious” approach to this year’s inventory commitments in many categories. Hennington said Target saw “incredible growth” in its food and beverage, and essentials and beauty businesses. That growth offset consumer pullback in discretionary items like home, apparel and hard lines. Despite the pullback, Hennington said Target’s discretionary category still generated $55 billion in sales in 2022.

Hennington attributed the growth to Target’s customer base, who “are attracted to all things trendy and new. We believe our commitment to newness is a key reason why we continue to generate traffic growth and why we drove broad unit share gains last year.” At the same time, Hennington said a reliable shopping experience is a foundational element of success in retail. To advance that initiative, Hennington said investments in remodelling and new stores will continue.

To view the full release, visit the Target website. 

Source: Retail Drive
Source: Yahoo Finance
Source: Target

Loblaw Companies Reports $529m Q4 Profit, Revenue Up Nearly 10%

Loblaw Companies Ltd. predicts its profits will grow faster than its sales in 2023 as the company’s fourth-quarter adjusted profits jumped nearly 12% while Canadians continue to grapple with soaring food costs and inflation.

The supermarket giant has blamed rising food costs on price hikes passed down from suppliers and manufacturers but it said that it expects its adjusted earnings per common share to grow by a low double-digit percentage for the full year 2023.

The parent company of Loblaws grocery stores and Shoppers Drug Mart also said it earned a profit available to common shareholders of $529 million in its latest quarter as its revenue rose nearly 10% compared with a year ago. The retailer said the sales growth “was driven by continued strong demand for cough and cold products and strength in high-margin beauty and cosmetics categories,” while its discount grocery stores outperformed.

The company reported that its overall revenue increased nearly 10% to $14 billion in the weeks ended Dec. 31, 2022, up from $12.8 billion in the fourth quarter of 2021. The increase in revenue came as food retail same-store sales gained 8.4%, while drug retail same-store sales rose 8.7%.

Galen Weston summoned to face parliamentary committee

This news comes as Loblaw CEO Galen Weston, Empire CEO Michael Medline and Metro CEO Eric La Flèche — the heads of Canada’s largest supermarkets — were summoned by the House of Commons agriculture committee as part of its inquiry into alleged profiteering by the grocery industry and its business practices.

Consumers over the last year have grown weary of skyrocketing grocery bills as the big grocers report record profits. Grocery prices continue to surge far past the “headline” inflation rate, rising by 11.4%, despite Canada’s annual rate of inflation falling to 5.9% in January, Statistics Canada reported. 

Yet Loblaw’s adjusted profit increased almost 12% to $575 million, up from $515 million in the same quarter the year before. The adjusted earnings amounted to $1.76 per diluted share in its latest quarter, compared with an adjusted profit of $1.52 per diluted share a year earlier. This surpassed analysts’ expectations of $1.71 per share according to financial markets data firm Refinitiv.

At the same time, the grocer’s gross margins for Loblaw’s retail business, which refers to the difference between the costs of goods and their sales revenue, dipped slightly to 30.6% down from 30.9% a year earlier. But gross margins are still a percentage point higher than in January 2020, before the pandemic, at 29.78%.

The company said the decline was largely related to the No Name product price freeze that took place over the holidays but were “partially offset by continued strength in higher margin front-store sales in the drug business.” 

Canadians for Tax Fairness economist DT Cochrane said the retailer will try paint itself in the most positive light for both shareholders and consumers. “Out of one side of their mouths, they want to say to their shareholders, ‘look how profitable we are.’ At the same time, they are also very mindful about the fact the public is paying attention to them,” Cochrane said.

What Canadians should be looking out for, Cochrane said, is how much of a markup companies like Loblaw are applying on top of the higher costs they are facing, adding that the retailer was steadily increasing markup well before the pandemic. According to Cochrane, Loblaw’s markup over base costs in 2010 was 32.5%, by 2019 it was 44.3% and in 2022 it was 46.7%.

The company needs to be more transparent in its reports and about where profits are coming from especially as it owns several brands, Cochrane added. “It raises question about whether we should allow a company like this to bundle together essential goods,” he said. “It makes it much more difficult for us to figure out where this profit is actually coming from and how much is coming out of the pockets of Canadians just trying to survive.”

To view the full release, visit the Loblaw website.

Source: The Star
Source: Globe and Mail
Source: Financial Post
Source: Loblaw