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Costco brings back food sampling, crushes earnings estimates

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As we head into the Memorial Day weekend, Brian Sozzi talks about Costco as the giant retailer announced it would be bringing back free samples and food courts along with reporting Q3 earnings better than estimates.

Video Transcript

MYLES UDLAND: Well, in those earnings reports we discussed earlier on in the program, one name we left out, saving for later-- Costco, down about 2% this morning, Sozzi. But of course, Costco always a key read on how US consumers are feeling about their prospects as the experience inside of Costco's grows more normal.

BRIAN SOZZI: Costco did what Costco normally does-- they laugh in the face of Wall Street sales and profit estimates. And they did so again in the most recent quarter. Same store sales overall up 20.6%. Analysts were looking for about a 14.5% increase. Their operating profits beat by $200 million. That's always good to see. And their earnings just clobbered analysts' estimates. I don't know what analysts were thinking here. They beat by about $0.43, so that's good. I am surprised to see the stock down here in the early going.

But I'm in a good mood today. I'm feeling fun. And there were some fun on this earnings call, led by-- always by Costco CFO, Richard Galanti. He's been doing this for 5 billion years. One, food courts. They're starting to reopen the food courts inside of Costco and bring back-- and I know you're both going to be very excited about this. Bring back churros, a very popular menu item inside those Costco food courts. They're also enlarging the seating areas to promote social distancing.

And another fun fact here, too, for you both-- free samples. Free samples always a fave, but Costco, that's why a lot of people, in fact, sign up for Costco, is get that free food as they walk around the store and drop $700 shopping there. Free samples are coming back at 170 stores very soon at Costco. Ultimately, they're going to bring them back to 550 stores in coming months. [INAUDIBLE] see they pulled back on [INAUDIBLE] last year because of the pandemic [INAUDIBLE].

And then, Myles, this fun gem of a fact on the earnings call comes also from [INAUDIBLE]. Chip shortages, logistics inflation, and he's telling analysts-- he told analysts last night, inflation will, quote, "will continue for the most part of this calendar year." So at least to the CFO of Costco, which touches everything from TVs, food, logistics-- you name it-- inflation isn't transitory.

MYLES UDLAND: You know, they said something on the call, Sozzi, that Costco sees inflation right now. Their estimate would be about 2 and 1/2% to 3 and 1/2% inflation. And they did say that excluding gas, which, of course, is a big part of their business. And I think we all have-- Brian Cheung will tell us about CPI versus PCE. Everyone loves their alternative measures of inflation. I like Costco management as a nice indicator there.

So that 2 and 1/2%, 3 and 1/2% certainly above the Fed's target, certainly above what we've grown accustomed to. And I think, hopefully, management continues to offer that sort of guidance to us in the coming quarters because I think a nice alternative check there on the state of the consumer. I do have a take, though. I mean, I don't think churros are that good.

BRIAN SOZZI: Really?

JULIE HYMAN: Really? Do you like donuts?

BRIAN SOZZI: What about those 5-foot hot dogs at Costco? Those are good.

MYLES UDLAND: Well--

JULIE HYMAN: Wait, do you like donuts, though?

MYLES UDLAND: Yeah, but churros are usually, like, kind of soggy and not as hot as they need to be. And the--

JULIE HYMAN: Oh.

MYLES UDLAND: --actual--

JULIE HYMAN: So it's not that you don't like churros. It's that you don't like bad churros.

MYLES UDLAND: But hold on, hold on.

BRIAN SOZZI: You're about to be trashed on Twitter, Myles.

MYLES UDLAND: But, like, if you-- where you get churros, Costco food court, baseball game, movie theater, you're getting, in general, churro that's been sitting under the warmer. It's not fresh out of the fryer. It's a frozen churro that was brought up to temp. And yeah, it's not-- you know, it's not like a zeppoli, which is, like, what it's derivative of. But it's not fried dough by the time it gets to you. It sort of just tastes like wet bread, so. The idea's fine.

BRIAN SOZZI: Wow.

MYLES UDLAND: It's a great flavor combination.

JULIE HYMAN: We need to find you some good churros. We need to find you some good ones.

MYLES UDLAND: I'm just saying, like--

JULIE HYMAN: I think that's the bottom line.

MYLES UDLAND: I'm just saying.

BRIAN SOZZI: Myles, you're going to have a story written to you. I think BI is going to write a story about this today. Yahoo Finance anchor shockingly hates churros, dash, dash, here's why.

MYLES UDLAND: Yeah, that's right.

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