According to Costco’s quarterly report, the warehouse club saw a rise in earnings for the second quarter. Reuters reports that Costco members’ spending power has remained stable while inflation has taken a chunk out of other retail chain profits.
Walmart and Target reported bleak profits for the quarter, which highlights a reluctance by low-income families to spend money on discretionary items, Reuters reported.
Costco seems to be in a sweet spot, as its shoppers tend to have a higher income than those of other retail brands. A study conducted by Kantar ShopperScape showed that most Costco shoppers have a household income in the $100,000 to $199,999 range.
Costco’s ability to keep gas prices below the national average has helped drive membership, which in turn helps its bottom line.
“The American consumer will go out of their way to save money on gas,” analyst Michael Baker of the investment banking company D.A. Davidson told Reuters. “The gas business drives traffic to the parking lot, and then somewhere between 30% and 50% of those customers end up going into the club and buying something.”
Costco’s rise in profits came despite COVID-19 lockdowns in China and their effect on the supply chain. Costco sells several Chinese-made products, including iPhones, apparel, and select Kirkland Signature items.
Other warehouse clubs are reporting similar profits.
BJ’s Wholesale Club, Costco’s more modest rival, reported a quarterly profit above analysts’ expectations for the quarter. The company says more frequent shopping from high-income members helped boost profits.
“The impact at the higher income cohorts is frankly a bit better than what we expected,” Bob Eddy, CEO of BJ’s, said during their quarterly earnings call.
A poll of analysts by Refinitiv predicts that Costco will earn $3.04 per share for the third quarter, a 10% increase from the same quarter last year.
According to Costco’s investors’ page, none of the analysts polled suggested selling Costco stock or reported it underperformed for the quarter.