Business

Costco (COST) reported a solid fiscal fourth quarter after the closing bell Thursday. Total revenue, which includes revenues from membership fees, increased 15% year over year to $72.09 billion, a slight beat compared to the consensus estimate of $72.04 billion. Earnings per share grew nearly 12% year over year to $4.20, beating estimates of $4.17. Over the full 16-week period, comparable sales in the United States increased 15.8% or 9.6% on an adjusted basis, which excludes the impact of gasoline prices and foreign exchange. In Canada, comparable sales increased 13.4% or 13.7% on an adjusted basis, while for the rest of international, comps increased 2.9% or 11.3% on an adjusted basis. E-commerce comparable sales increased 7.1% or 8.4% on an adjusted basis. For the total company, comparable sales increased 7.1% or 8.4% on an adjusted basis. Bottom line Costco shares were trading lower after-hours in reaction to the slight quarterly beats, but that’s typical of how Costco trades when it reports earnings. Costco doesn’t provide guidance but it does report its comparable sales on a monthly basis, Due to that monthly sales reporting structure, a lot of the good news gets priced-in ahead of the quarter. We continue to view Costco as a consistent, high-quality retailer with a fantastic business model that helps them to succeed in any economic environment. Inflationary, expansionary, or a recession, shoppers will always seek out the quality products at value prices Costco offers its customers. The stock may not be cheap by any measure, but we believe the premium is justified because of its dependable earnings growth. We continue to believe weakness in shares represents a long-term buying opportunity. Membership stats Revenue from membership fees is a closely followed metric because it is subscription based and is where Costco earns the majority of its profits. Membership fees increased 7.5% year over year to $1.33 billion, in-line with estimates of $1.321 billion. Foreign exchange had a $29.8 million negative impact. Costco ended its quarter with 118.9 million cardholders, an increase from 116.6 million total cardholders last quarter. Paid executive members ended the quarter at 29.1 million, up from 27.9 million last quarter. Renewal rates in the U.S. and Canada were 92.6%, a new all-time high. That’s up 0.3% from last quarter. The worldwide renewal rate was 90.4, up 0.4% from last quarter. Margins Merchandise gross margins on a reported basis were 10.18% and down 74 basis points from last year, but excluding the impact of gas inflation it would have been lower by only 20 basis points. Core merchandise margins fell 67 basis points on a reported basis and were down 23 basis points ex gas inflation. Sales mix was the primary driver of the decline because the wholesaler sold a lot of gasoline in the quarter, as you would expect, and that’s a lower margin product. Ancillary and other businesses’ margins increased 20 basis points on a reported basis and 34 basis points excluding gas inflation. Elsewhere, “2% reward” reported margins were flat on a reported basis and fell 5 basis points ex gas inflation. LIFO — last in, first out — margins fell 27 basis points on a reported basis and 29 basis points excluding gas. Other items The best-performing core categories in the fiscal fourth quarter were candy, frozen, kiosks, tire, lawn and garden, jewelry, toys, bakery, and deli. Costco opened up nine new net warehouses in the quarter, bringing the total for the full fiscal year to 26. Costco expects to open 29 new warehouses in fiscal 2023. The company estimated price inflation in the quarter was about 8%. That’s up from about 7% in the prior quarter. It’s a mixed picture, though, as Costco cited higher price inflation on food and sundries but a little lower on fresh foods. Wages are still higher. Costco is seeing commodities prices come down in areas such as gas, steel, beef, small changes in plastics, and also container pricing versus last year. The company hasn’t seen any discernable trend in its customers trading down. Potential catalysts As expected after Jim Cramer’s interview with CEO Craig Jelinek last week, management shot down the notion that an increase to its membership fee plan was imminent. Recall, that Costco historically has increased its membership fee every 5 to 5½ years. The 5½-year anniversary will be about January 2023, so let’s put this conversation on hold for at least a few more months. That being said, we believe Costco has the pricing power to increase its membership fees based on its customer loyalty and historically high renewal numbers. There was no talk about capital allocation and the cash on the balance sheet. We bring this up because Costco has paid out a special dividend four times in the past eight years, the last being in November 2020. (Jim Cramer’s Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Shopping carts are lined up in front of a Costco store on February 25, 2021 in Inglewood, California.
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Monday – Friday, 6:00 – 7:00 PM ET

It’s that time again! “Mad Money” host Jim Cramer rings the lightning round bell, which means he’s giving his answers to callers’ stock questions at rapid speed.

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Dow Inc: “Don’t buy it back. … It’s just not right.”

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SoFi Technologies Inc: “This stock is too cheap. … The CEO is going to make you money if you buy that stock at $5.36.”

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Energy Transfer LP: “[Investor] Lee Cooperman said the other day that he thinks Energy Transfer is good. He likes [Executive Chairman] Kelcy Warren, I like pipelines.”

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Chip maker Qualcomm (QCOM) shined a light on its automotive strategy during an investor day Thursday, detailing new partnerships and offering fresh insights into projected revenue at its auto division. Club holding Qualcomm said its automotive “design-win pipeline” now stands at $30 billion, up from roughly $19 billion when it reported third-quarter results in late July . The estimated figure stems from Qualcomm’s deals with auto companies that it expects to translate into sales in future years. It is not reflected on the company’s balance sheet yet. The company also disclosed an agreement with Mercedes-Benz to bring its cloud-connected auto platform to the German carmaker’s upcoming vehicles starting in 2023, as well as a deal with IBM software subsidiary Red Hat. “The automotive companies know they have to become a technology company. The car is going to be a connected computer on wheels,” Qualcomm CEO Cristiano Amon told CNBC earlier Thursday. “Companies know … they need to move fast to this new automotive industry, and that’s why partnerships with companies like Qualcomm become very important,” he said. Bottom line Qualcomm delivered with its first-ever automotive investor day. Its booming auto pipeline and additional tie-ups with vehicle original equipment manufacturers (OEMs) offer more evidence that the industry is embracing its automotive platform. Looking forward, we think that as Qualcomm proves its become more than a handset company, investors will ascribe more value to its future earnings. That, in turn, would translate into a higher multiple for its stock. It currently trades at less than 10 times forward earnings, well below its five-year average of 15.8, according to FactSet. More Club thoughts Thursday’s auto event has been circled on our calendars because it goes to the heart of our investment thesis in the company: revenue diversification. Qualcomm is a longtime leader in smartphone chips and other wireless communication technology, but has started to more aggressively expand into other industries like automotive. Although Qualcomm modems have enabled cellular connectivity in vehicles for roughly two decades, this current chapter is about developing a connected-vehicle platform. It’s a small contributor to Qualcomm’s top line right now, but represents a key ingredient to its growth recipe in the coming years. We are believers. We think Qualcomm can successfully diversify, leaning on its mobile-computing DNA to develop the digital support framework that tech-heavy modern vehicles require. Qualcomm’s overall automotive platform is called the Snapdragon Digital Chassis. It carries the Snapdragon brand given to the company’s mobile processors and uses the same word — chassis — given to a vehicle’s physical support frame. In this case, it’s silicon and software taking the place of steel or aluminum. In addition to cellular connectivity, infotainment screens and the vehicle’s cockpit, other features include advanced-driving assistance systems (ADAS). Qualcomm has existing deals with automakers involving its ADAS infrastructure, known as the Snapdragon Ride Platform, including with BMW and General Motors (GM). Nonetheless, the market has not been kind to Qualcomm’s stock price this year, sending it down by more than 30%, as investors jumped ship over fears of a smartphone slowdown and higher interest rates. We started buying QCOM in February and have since built up our position to 850 shares, trying to capitalize on weakness as believers in the company’s multiyear diversification story. It has about a 3.83% weighting in our portfolio . While it’s not fun to see a stock you own fall out of favor, as long as your rationale remains intact, long-term investors can view the selling opportunistically. That’s how we approached the decision to purchase 100 Qualcomm shares on Sept. 9 . The market gave us a chance to buy more of something we like at a discount. Qualcomm’s stock closed down 0.75% on Thursday, at $123.68 a share. Details on financials Qualcomm CFO Akash Palkhiwala offered some auto-focused financial comments during the investor day. Some quick background: Qualcomm reports results in two primary segments, Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL). QCT is the semiconductor business most think of when considering Qualcomm’s operations and generate the bulk of the company’s total sales, while QTL grants licenses to use portions of Qualcomm’s intellectual property portfolio. Here is a quick summary of Palkhiwala’s comments. The company expects QCT automotive revenue — auto-related sales from its traditional chip business — to be $4 billion in fiscal 2026 and $9 billion in fiscal 2031, compared with an estimated $1.3 billion in fiscal 2022. Palkhiwala said management has “exceptional” visibility into future revenue due to how its deals with OEMs are structured. “Over the next four years, 90% of our cumulative revenue forecast … is covered under existing design wins,” he said. (Qualcomm’s total revenue for fiscal 2021 was $35.57 billion.) Palkhiwala also indicated that Qualcomm anticipates its ADAS offering to meaningfully scale in fiscal 2026. Fiscal 2022, on the other hand, represented a major ramp up in revenue from its Snapdragon Cockpit Platforms, he said, noting there were 20 new vehicle launches this year. The executive tried to quantify Qualcomm’s potential revenue on a per-vehicle basis by the year 2030, saying that it should come in around $200 for a lower-tier car and up to $3,000 for high-tier vehicles. “You should think of cars going forward, the mix will continue to shift toward the high end,” he said. “The opportunity will keep expanding as we go forward.” An important thing to keep in mind with Qualcomm’s design-win pipeline, Palkhiwala said, is that recurring services and cloud revenue is “upside to those numbers.” The company sees “tremendous opportunity” there, but it is not embedded in the targets for now, he said. For now, the design-win pipeline mostly consists of expected revenue that existing chipsets and software will provide. (Jim Cramer’s Charitable Trust is long QCOM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Qualcomm president and CEO Cristiano Amon speaks about Qualcomm’s technology for automakers at a news conference during CES 2022 in Las Vegas, Nevada, January 4, 2022.
Steve Marcus | Reuters More

Monday – Friday, 6:00 – 7:00 PM ET

CNBC’s Jim Cramer on Thursday said that based on his conversations with CEOs, tech companies are feeling the Federal Reserve’s push against inflation.
“While some of these tech companies have business lines that may be somewhat immunized against higher borrowing costs, they are few and far between out here,” the “Mad Money” host said.

CNBC’s Jim Cramer on Thursday said that based on his conversations with CEOs, tech companies are feeling the Federal Reserve’s push against inflation.
“While some of these tech companies have business lines that may be somewhat immunized against higher borrowing costs, they are few and far between out here,” the “Mad Money” host said.

Cramer, who has spent the week in San Francisco, said he speaks to “at least 20 CEOs” every time he visits the city. From his conversations this time around, he came away with three takeaways that led him to his conclusion.
Here they are:

Tech companies are having no trouble hiring talent. Cramer said that the tech executives he spoke to said they haven’t had trouble finding talent. In other words, last year’s tug of war for recruiting employees has been replaced by a fear of joblessness. Cramer said that this bodes well for the Fed’s quest to stamp out inflation, including wage inflation. 
Not every tech company’s product is indispensable, despite what they might say. While tech firms tout their products as must-haves, no company wants to spend tons of cash on an ultimately unnecessarily upgrade to their digital systems during a bad economy, Cramer said. At the same time, it doesn’t matter if a company is indispensable, he added. “Fantastic growth stocks sell at ever-shrinking price-to-earnings multiples because they’re the best houses in bad neighborhoods.”
The best tech companies have to reinvent themselves on the fly. Cramer noted Salesforce’s shift to prioritizing profitable growth and returning capital to shareholders instead of growth as an example of this adjustment. 

He also reiterated that all the issues tech companies currently face are part of Fed Chair Jerome Powell’s plan to cool down inflation.
“The Fed wants the price of all assets down, including your homes and your portfolios. Jay Powell can only do that by making it more expensive to borrow money. That’s exactly what he’s doing,” Cramer said.
Disclaimer: Cramer’s Charitable Trust owns shares of Salesforce.

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The company said that its Express, Ground and Home Delivery rates will increase by an average of 6.9%.
For its fiscal 2023, the company expects total cost savings of $2.2 billion to $2.27 billion.
Last week, the company’s stock sank after it posted preliminary revenue and earnings that fell short of Wall Street expectations.

FedEx on Thursday announced rate hikes and detailed its cost-cutting efforts after the shipping giant warned last week that its fiscal first quarter results were hit by weakening global demand.
Shares of FedEx closed slightly higher after the earnings announcement, which was unintentionally released before the bell. “The early earnings release was a tech issue and not intentional,” a spokesperson for the company said.

Last week, the company’s stock sank after it posted preliminary revenue and earnings that fell short of Wall Street expectations. CEO Raj Subramaniam cited a tough macroeconomic environment, and said he expects the economy to enter a “worldwide recession.” The company withdrew its guidance for the year and said it would slash costs.

A person walks by a FedEx van in New York City, May 9, 2022.
Andrew Kelly | Reuters

The shipping giant struggled with light volumes in the quarter, citing headwinds in its Europe and Asia markets. The poor results shocked the market, as investors tried to distinguish market woes from FedEx’s own internal shortcomings.
In issuing its full first quarter results Thursday, the company said that its Express, Ground and Home Delivery rates will increase by an average of 6.9%. Its FedEx Freight rates will increase by an average of 6.9%-7.9%, the company said.
It also said it believes it will save between $1.5 billion and $1.7 billion by parking planes and reducing flights. The closure of certain locations, the suspension of some Sunday operations, and other expense actions will save FedEx Ground between $350 million and $500 million, according to the company.
FedEx said it will save an additional $350 million to $500 million by reducing vendor use, deferring projects and closing office locations.

“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial, and capacity levers to adjust to the impacts of reduced demand,” said Subramaniam.
For its fiscal 2023, the company expects total cost savings of $2.2 billion to $2.27 billion.
Despite its bleak warning last week, FedEx stood by its 2025 projections set out in June. The company is forecasting annual revenue growth of between 4% and 6% and earnings per share growth of between 14% and 19%.

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Dennis Muilenburg, who was Boeing’s CEO at the time, will pay $1 million to settle the charges, the SEC said.
The two crashes killed all 346 people aboard the flights and lead to a worldwide grounding.

A Boeing 737 MAX 7 aircraft lands during an evaluation flight at Boeing Field in Seattle, Washington, September 30, 2020.
Lindsey Wasson | Reuters

Boeing will pay $200 million and then-CEO Dennis Muilenburg will pay $1 million to settle charges over misleading investors in the wake of two deadly crashes of 737 Max jetliners, the Securities and Exchange Commission said Thursday.
“In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets. The Boeing Company and its former CEO, Dennis Muilenburg, failed in this most basic obligation,” SEC Chair Gary Gensler in a statement.

The two crashes — one in October 2018 and another in March 2019 — killed all 346 people aboard the two flights and led to a worldwide grounding of the jetliners. The grounding was first lifted in late 2020.
Boeing fired Muilenberg in December 2019 in the midst of the planes’ extended grounding and comments about when he expected regulators to clear the planes to fly again. The comments also strained the manufacturer’s relationship with the Federal Aviation Administration, prompting public admonishment by the regulator.
“Today’s settlement is part of the company’s broader effort to responsibly resolve outstanding legal matters related to the 737 MAX accidents in a manner that serves the best interests of our shareholders, employees, and other stakeholders,” Boeing said in a statement.
Neither Boeing nor Muilenburg admitted nor denied the SEC’s findings, the agency said.
In January 2021, Boeing agreed to pay $2.5 billion to settle a criminal probe with the Justice Department over the planes.
Two damning congressional investigations after the crashes found management, design and regulatory lapses in the 737 Max’s development and certification. That led to new legislation to reform aircraft certification, giving more control over the process to the FAA.

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The number of corporations pledging to emit net zero emissions by 2050 will more than double from this year to 2023, from 102 to 238.
Corporate commitments to reduce emissions enough to stay under precise global warming targets are far lower, but the gains are still promising.

Jose A. Bernat Bacete | Moment | Getty Images

The vast majority of Americans support both corporate transparency on climate as well as federal requirements for corporations to disclose their climate data, from emissions to emission reductions to sustainability programs and climate commitments. But although many corporations are improving on these pledges, some sectors are still woefully behind, according to a new report from Just Capital, which tracks companies in the Russell 1000. 
The number of corporations pledging to emit net zero emissions by 2050 will more than double from this year to 2023, from 102 to 238. And in the important category of committing to reduce emissions, the numbers rose from 412 to 489, according to the report.

Corporate commitments to reduce emissions enough to stay under precise global warming targets are far lower, but the gains are still promising. Companies with verified targets by the Science Based Targets Initiative (SBTi) to meet a 2-degree scenario will double between 2022 and 2023, from 25 to 45. On the most ambitious commitment, a verified SBTi 1.5-degree scenario, 83 companies will become verified, a 21% increase year over year.
“The findings show considerable progress,” said Martin Whittaker, CEO of Just Capital. “But as we know there’s hesitancy accepting these commitments at face value. We’ve seen a doubling in net zero commitments, and an increase in science-based targets as well, but these are not necessarily concentrated in industries that are high polluters, which of course is where the action needs to be focused.”
While net zero targets generally have a year as the finish line, they don’t commit to a particular degree reduction of global warming. Whittaker noted that has raised some worries that companies will just wait until the last minute to work toward these commitments and not focus on what they can do right now.
“All of the companies, however, that set a target year for 2050 also had set interim targets — which will be goal posts for stakeholders to assess their progress and push for more change if they’re not making progress,” he added.
The report found that companies in lower-emitting industries like clothing and accessories and personal products had a larger share of 1.5 degree SBTi commitments, while high emitting industries like utilities and oil and gas had almost no aggressive commitments.

“Clothing brands and other consumer-facing industries like personal products could be experiencing a push from their consumer base. Our polling has indicated that the American public cares about companies disclosing on climate,” Whittaker said. He cited other recent polling from Edelman indicating that over 60% of consumers choose, switch, or boycott brands based on their stance on societal issues.

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Activist investor Ancora Holdings is pushing for the removal of Kohl’s CEO and chairman.
Michelle Gass has been CEO since 2018, and Peter Boneparth became chairman this year.
The firm has previously pushed for board shake-ups.

Michelle Gass
Chris Ratcliffe | Bloomberg | Getty Images

Activist investor Ancora Holdings is pushing Kohl’s to remove its chief executive and its chairman.
Ancora sent a letter to the board Thursday asking for the replacement of CEO Michelle Gass and Chairman Peter Boneparth. The firm, which has a 2.5% stake in Kohl’s, wants new leadership so the company can revamp its business.

“Kohl’s needs new leadership with demonstrated experience in cost containment, margin expansion, product catalog optimization and, most importantly, turnarounds,” says the letter, which has been obtained by CNBC.
The push comes a few months after Kohl’s terminated its talks to sell to Franchise Group. The company had been encouraged by activist investors to pursue a sale. Franchise Group proposed a bid of $60 per share before the uncertain economic environment forced it to bring its potential offer down to $53.
Gass came from Starbucks to take over as CEO for Kevin Mansell in 2018, with plans including the expansion of Sephora’s presence in Kohl’s stores. Ancora called her a “talented leader” and praised the Sephora partnership. Boneparth has been a director at the company since 2008 and became chairman this year.
“During the Boneparth era, the Board has created an environment in which Ms. Gass is no longer well-positioned to lead,” the Ancora letter said.
A spokesperson for Kohl’s said the company is committed to Gass.

“The Kohl’s Board unanimously supports Michelle Gass and her leadership team,” a company spokesperson wrote in a statement to CNBC. “The Board continues to actively engage with management to navigate the current retail environment.”
The activist investor, along with Macellum Advisors, attempted to seize control of Kohl’s board in 2021. In that attempt, Ancora, along with other stakeholders, pushed for new directors with retail experience, inventory reduction and the sale of Kohl’s real estate. Kohl’s pushed back against the endeavor, and the two parties settled to add three new directors.
Kohl’s received a bid on its property from Oak Street Real Estate Capital earlier in September. The real estate investor offered as much as $2 billion for the chain’s property, which Kohl’s would lease back for its store locations.
“Now you’ve got an environment where financing has changed so much that it may in fact be more attractive to use real estate as a monetization vehicle,” Boneparth told CNBC in a phone interview prior to the Oak Street offer.
Kohl’s and Ancora Holdings did not immediately respond to requests for comment.
Shares of Kohl’s are down about 43% so far this year.

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