Costco Posts Strong Q3 Results, Confirms $1.50 Hot Dog Price ‘Safe’

The club business continues to capture consumers on price, according to Costco’s latest earnings results. The club store chain reported net income of $1.68 billion, or $3.78 per diluted share, during Q3 2024, an increase of 29.1% from $1.3 billion (or $2.93 per diluted share) in the third quarter last year.

Net sales in the quarter grew over 9% y/y to $57.39 billion; U.S. comparable sales grew 6.2%, or 6% adjusted for gas inflation and foreign currency exchange. Third-quarter gross margin came in 52 basis points higher year over year at 10.84% compared to 10.32% last year.

The company also shared an update on its expansion plans, which included two new warehouse openings during Q3, and two additional openings in Loomis, Calif., and another in China’s Nanjing market, added Gary Millerchip, EVP and CFO. Costco plans to open 12 new locations, with nine in the U.S., two in Japan and one in Korea throughout the rest of the year.

Membership fee income grew 7.6% to over $1.12 billion year over year. As Costco’s consumer base and physical footprint continues to grow, the impact of inflation on pricing remains top of mind. Millerchip noted that the food court had the strongest quarterly sales and emphasized that the company’s model relies on “intentionally creating incremental value” to deliver low prices to members.

“On the inflation front, it’s more of the same from last quarter,” he said. “Across all core merchandise, inflation was essentially flat in Q3 with fresh foods close to zero and slight inflation in food and sundries being offset by some deflation in nonfoods… We believe our strategy of delivering value to drive unit volume and member satisfaction is the winning combination for us. In that vein, our buying teams are constantly aware of changing costs across all of their SKUs and are ensuring that we’re capturing all cost decreases quickly so that we can pass on incremental value through price reductions.”

For example, Millerchip highlighted that it has dropped the price of pine nuts sold under its private brand, Kirkland Signature, from $29.99 to $24.99 (a $5 decrease) during the quarter and dropped the price of its private label frozen shrimp by $1.

The results also marked the first earnings conference joined by new president and CEO Ron Vachris, who affirmed from the start of the call that “the $1.50 hot dog price is safe.”

Vachris went on to explain that discretionary spending is tracking back up, particularly in grocery, fresh food and even dining away from home, he noted in response to an investor question. In order to continue growing basket sizes, Costco is embracing clever merchandising strategies and bringing in more international products to support impulse purchasing.

“We’ve seen great success in international foods that have been brought into the U.S. and then from the U.S. into the other regions of the world where we do business,” he explained in response to an investor question about its consumables merchandising strategies. “When we bring in an item that’s a success in Taiwan or Korea or the U.K., then it creates that excitement for the member.”