Costco shares some good pricing news some members won't believe

The warehouse club has always been deeply honest about its sales and has avoided playing into politics.

Jun 15, 2024 - 02:30

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Costco shares some good pricing news some members won't believe

While you can't deny that inflation has played a key role in the United States' economy, it's not a simple picture. There's a right-wing narrative that costs are out of control, there are no jobs, and that most Americans are struggling.

The reality is that inflation has ebbed in many areas, gas prices have generally fallen, and the unemployment rate has hovered around historic lows. That's not to say there aren't problems in the economy.

If, for example, you need to buy a house, you are hit with the punishing one-two punch of higher prices and sky-high interest rates. When you have to spend more on your mortgage or rent each month, it makes every other small price increase hit harder.

The same applies to the job market, which is often looked at on a broad level but is actually deeply personal. If you don't have a job or are underemployed, you don't care that the overall unemployment rate is very low.

It's by no means a perfect economy, but the far-right agenda that the country is burning and we're facing a deep recession just doesn't match reality. Costco (COST) , a company that simply answers questions with any seeming political agenda has delivered some news that may make a point with the public that President Joe Biden's team has struggled to make.

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Costco members have changed their buying patterns in a positive way.
Image source: Xinhua/Ting Shen via Getty Images

Costco sees a key improvement

Costco's membership seems like a good bellwether for the nation. The chain does not share its membership demographics, but it's fair to say its customers are people who can afford a membership, but who still care about saving money. That's a pretty large swath of Americans.

CEO Ron Vachris fielded a question during his company's third-quarter earnings call from Truist Securities Analyst Scot Ciccarelli.

"So, given the strength of your discretionary sales following the lull that we've seen with — as the economy got a little funky, does that suggest your members are starting to feel better and more willing to spend on wants rather than needs?" he asked.

Vachris was clear in his answer.

"You know what, it does indeed look that way. I've got to tell you that the discretionary spend we're seeing, I mean, we're definitely winning in consumables as we see the food business and, you know, dining away from home has softened up a bit, and people are eating at home, and we're seeing that in our fresh foods. But I have to tell you that categories such as the home division and toys are categories that have lagged quite a bit post-COVID — with great excitement. I mean our buyers have come out and delivered some great items at phenomenal values, have really rejuvenated those categories," he said.

Vachris said that Costco was seeing renewed strength in sporting goods, toys, furnishings, domestics, "all those categories are really coming on very strong now and all of a discretionary nature," he added.

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Costco also shares good news on inflation

Costco CFO Gary Millerchip, who was leading his first earnings call for the company, was bullish on discretionary items as well and he shared why he thinks those numbers have gone up.

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"As inflation has leveled off, our members are returning to purchasing more discretionary items. And growth in the category was led by toys, tires, lawn and garden, and health and beauty aids. Bakery sales also showed great momentum in the quarter as our fresh foods team has reinvented that department with a number of new and exciting items, including the Kirkland Signature lemon blueberry loaf and morning buns," he added.

Bakery may not be big ticket, but nobody needs a muffin or a cinnamon roll so people buying them is a positive sign about how they feel about their finances.

Millerchip also provided some color about inflation in general.

"On the inflation front, it's more of the same from last quarter. 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. The deflation in nonfoods was led by hardware, sporting goods and furniture, all still benefiting from lower freight costs year over year," he shared.

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