BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Costco Earnings Show It Is Still In A Retail League Of Its Own

This article is more than 3 years old.

On Costco’s nearly 90-minute earnings call Thursday evening, management was asked why it doesn’t offer online ordering for in-store or curbside pickup of groceries and other general-merchandise items—a key pitch for other retailers from Walmart WMT and Target TGT to Kroger KR and Amazon’s AMZN Whole Foods WFM

“It’s not on our priority list,” said Richard Galanti, the finance chief at Costco, which only has in-store pickups for some electronics and jewelry items. “Our sales are stronger than ever. We are good at pivoting (if the need ever arises).” 

Months after the coronavirus pandemic led consumers to line up outside its warehouses to stock up on groceries and other items, demand at the largest membership warehouse club remains well above the industry average. In the quarter that ended August 30, comparable sales, excluding the impact of gasoline sales and foreign currency translations, jumped nearly 14% in the U.S., its largest market with 552 warehouse clubs.

More consumers visited the stores in the U.S., a feat that would be the envy of many of its industry rivals, and they spent more per transaction. 

“People are feeling safe coming in,” Galanti said, adding that customer traffic picked up “dramatically” in July and August. 

Also noteworthy was that customers were there not only to buy fresh foods and other grocery items but also to purchase non-essential items such as outdoor patio furniture and clothing, a trend Costco expects to last. “We are retaining more of their dollars even when they go back to dining and other things,” Galanti said. 

Worldwide, where Costco has a total of 795 warehouses in countries that include Canada, Spain, Korea and Taiwan, same-store sales topped 14%. Online sales surged 91% and would have more than doubled if same-day third-party grocery delivery by Instacart were included, Galanti said.

E-commerce sales totaled about 8% of the business (and 10% including third-party deliveries), up from 5% a year earlier. Like other retailers, Costco has seen a surge in demand for same-day grocery delivery while online sales of big and bulky items such as exercise equipment and lawn furniture have also increased.

“Prospects continue to look bright for (Costco), and we can’t think of another name that is better prepared to play both offense and defense in today’s fluid backdrop,” Gordon Haskett analyst Chuck Grom said in a report. Costco pricing items at a markup of only 14% to 15% above costs is “a strategy that continues to pay dividends,” he said.

So is its treasure hunt environment, which features unusual finds such as Taiwanese mochi glutinous rice cake treats. 

Total sales last quarter rose 12.5%, to $52.3 billion. Membership fees rose 5.3%, to $1.1 billion, as Costco attracted new members and kept the membership renewal rate in the U.S. at 91% and the rest of the world’s close to 90%. 

Profit surged 27%, to $1.39 billion, even as the company spent $281 million in pre-tax costs tied to wage hikes and sanitation costs related to the Covid-19 pandemic. Gross margin widened, thanks in part to strong demand for fresh groceries that led to fewer products spoiling, Galanti said.

Costco will continue to pay workers an additional $2 an hour in the first eight weeks of this quarter, the finance chief said. He also said supplies of items from meat products to sanitizers are no longer an issue, with disinfecting wipes and latex gloves the only exceptions.

Related on Forbes: Even as cities reopen, restaurants are being hammered by the coronavirus

Related on Forbes: Century 21, a “dangerously addictive” place, just became the latest coronavirus casualty

Follow me on Twitter