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A more cost-conscious consumer made for a challenging business climate in 4Q24 for Costco (COST), which fell just short of revenue expectations, but the results overall still point to a company that's executing well and outperforming most retailers. This is most clearly evidenced by COST's strong comp of +6.9% (excluding impact of gas and FX), which was almost entirely driven by the 6.4% increase in traffic. It's also worth noting that the strength in shopping frequency came even as gas prices eased somewhat, lessening a key driver for traffic.

Along with some softness in certain non-food product categories, such as home and furniture, the drop in gas prices did contribute to the modest top-line miss. Looking beyond this blemish, there were plenty of positives.

• A primary growth strategy for COST has been to improve and enhance its digital capabilities and those efforts continued to pay dividends in Q4, as illustrated by its impressive adjusted eCommerce comp of +19.5%. Improving delivery times, product assortment, and scheduling functionalities, combined with enhancements to the mobile app and website, have helped bolster COST's digital sales.
• Additionally, the insatiable demand for gold bars and silver bullion continued in Q4, providing another potent catalyst for COST's eCommerce channel. Gold and jewelry were up double-digits in the quarter, but a number of discretionary product categories also posted double-digit increases, such as toys, gift cards, tires, home furnishings, and health and beauty.
• Membership growth remains very healthy, as well, coming in at +7.3% for a total of 76.2 mln paid household members. Overall, membership fee income edged higher by 0.2% to $1.512 bln, which slightly missed analysts' expectations. The miss may be attributable to FX-related headwinds, which clipped membership fee income by 0.9%.
• COST's membership fee increase didn't have an impact on Q4 results since it took effect on September 1 -- the day that Q4 ended -- but it will be a significant factor moving forward. During the earnings call, CFO Gary Millerchip shortly addressed the topic, stating that the fee increase will only have a minimal impact early in FY25 due to deferred accounting, with the majority of the benefit coming in the back half of the year and into FY26. Mr. Millerchip also commented, though, that COST remains committed to investing in its employees, as evidenced by a July wage increase, suggesting that some of the benefit may be funneled back to its workforce.

COST delivered another solid earnings report, although it wasn't perfect due to the small revenue miss, which is enough to spur some moderate selling pressure. With a 1-year forward P/E north of 50x, the stock is also quite expensive, and COST will need to continue performing at a very high level to justify that valuation. With its membership fee increase in hand, and with the possibility that consumer spending trends improve as interest rates recede, we do expect that COST will indeed remain a best-in-class retailer.