Costco's third-quarter revenue fell short of expectations, with e-commerce sales down 10% year-over-year

It is learned that on May 25, Costco reported lower-than-expected earnings for the third quarter of fiscal 2023 as consumers reduced spending on non-essential items amid continued inflation and economic uncertainty.

As consumers focus on essential categories such as food and groceries, demand for high-margin products such as home furnishings, jewelry, toys and electronics has dropped significantly. Omni-channel retailers such as Costco that rely on a diverse range of products to drive sales are facing unprecedented challenges.

Just last week, Target and Home Depot also reported first-quarter results that fell short of expectations, and both companies also issued disappointing second-quarter and full-year forecasts.

In the first quarter of fiscal 2023, Costco's total revenue was $53.65 billion, missing analysts' expectations of $54.66 billion. The company's adjusted earnings per share were also lower than expected ($3.30), at $2.93.

Costco Chief Financial Officer Richard Galanti said on the earnings call that Costco's customer traffic "is still pretty good." In the third quarter, customer traffic increased 4.8% globally and 3.5% in the United States. However, the average ticket price declined, down 4.2% globally and 3.5% in the United States, largely due to weak sales of higher-priced non-food items.

Costco's in-store sales of larger discretionary items such as furniture, small electronics, jewelry and hardware fell 17% from a year ago and accounted for just 8% of in-store sales.

The company also saw a decline in e-commerce sales in the third fiscal quarter, down 10.0% compared to the same period last year. Specifically, e-commerce sales of large non-essential items fell 20% year-on-year (but accounted for 55% of e-commerce sales). Currently, Costco has launched sites in the United States, Canada, the United Kingdom, Mexico, South Korea, Taiwan, Japan, and Australia.

However, Costco has made positive progress in membership revenue, which has contributed greatly to the company's gross profit margin. In the third quarter, Costco's membership revenue was $1.04 billion, which was lower than the market expectation of $1.05 billion, but higher than $984 million in the same period last year.

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