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Costco Wholesale posts upbeat third quarter earnings and revenue, although gross margins saw a big fall

Published: 11:15 27 May 2022 EDT

Child in a store
In the third quarter, the membership-only retailer saw its gross margins drop by 99 basis points

Costco (NASDAQ:NA:COST) Wholesale Corp reported a mostly upbeat quarterly earnings report after the market close on Thursday, although the shine was taken off by a big fall in its gross margins due to soaring freight and labor costs across the United States.

In the third quarter, the membership-only retailer saw its gross margins drop by 99 basis points.

Costco (NASDAQ:NA:COST)'s total revenue, however, rose by 16% to $52.60 billion in the quarter ended May 8, 2022, compared with estimates of $51.71 billion. Excluding items, Costco (NASDAQ:NA:COST) earned $3.17 per share, also beating estimates of $3.03.

US companies have been struggling with higher costs due to supply chain disruptions, exacerbated by fresh coronavirus (COVID-19) lockdowns in China and the Russia-Ukraine war.

Costco said it was increasing prices in certain areas of food to combat inflationary pressures. However, the company's efforts to keep gas prices several cents below the national average have helped drive its memberships and sales.

In contrast to rival Walmart, Costco said there had not been much of a trade down or trade out from branded products to its private label product, Kirkland Signature. The average shopper at the warehouse club operator earns more than a typical Walmart customer.

In morning trading in New York on Friday, CostCo shares were 0.5% higher at US$465.69, having fallen 2% in after-hours trade on Thursday.

Contact the author at jon.hopkins@proactiveinvestors.com

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