Why Costco's Higher-Than-Expected Sales Were Not Good News For Investors

Costco has been very successful lately. The mega-retailer recently released its fiscal third-quarter report, which covered the period between February 14 to May 8. According to MarketWatch, the retailer earned $1.35 billion in profit and made $52.6 billion in sales — $1 billion more than analysts had expected for the company. As if that weren't enough, the company is experiencing a major period of growth — Costco is on track to hit $200 billion in sales by the end of its fiscal year, a new record for them. Yet despite all these successes, investors clearly aren't optimistic.

Shortly after the report was published, Costco's stock dropped 1.8%, according to Barron's — an unusual reaction to high profits. So why exactly are investors less than happy with the retailer's results? According to Barron's, the culprit might be the fact that Costco's competition is thriving — especially since other retailers are better suited to accommodate shrinking budgets.

Costco might have their cake, but they're struggling to eat it

As Barron notes, it doesn't seem coincidental that Walmart's stock has been increasing as Costco's decreases. The cost of living is rising remarkably quickly — the fastest rates in 40 years (via Time) — and budgets can't seem to catch up. According to recent studies conducted by PYMNTS.com and Lending Club, a staggering ⅔ of American urbanites and half of those who earn $100k+ are living paycheck to paycheck (via Cision). As budgets shrink, buying in bulk to save money can quickly turn into a luxury (not to mention the fact that Costco charges its customers membership fees — another household expense to potentially cut). Since inflation doesn't show any signs of slowing down, other retailers might experience more success than Costco in the coming months, making them promising investment opportunities.

As if inflation weren't bad enough, Barron's also identifies the current fuel crisis as a potential challenge for Costco, which uses its famously cheap gas bar as a way to lure customers to the store. While drivers might be desperate for the best fuel prices possible, sky-high prices might also encourage them to drive less ... and purchase less gas from Costco (leading to fewer trips to the store and less revenue). Ultimately, although Costco is still very successful, these new challenges are giving investors cause for concern.