Craig Jelinek, president and chief executive officer of Costco Wholesale Corp., is maintaining the company’s financial momentum while boosting its expansion plans, industry observers told SN.
Jelinek, who keeps a low profile, declined comment.
The company, based in Issaquah, Wash., said in April it plans to open approximately 150 new warehouses over the next five years, including 28 this year, compared with 16 in fiscal 2012 and 20 in fiscal 2011.
Of the 150 projected locations, 55 would be in the U.S., with the balance in Canada and overseas, the company said. It also said half the warehouses would be in-fill locations and half in new markets.
Costco said the increased rate of expansion has less to do with competitive activity, “but simply reflects that we are doing well and we want to ramp up expansion, which is a decision we made two or three years ago.”
Deborah Weinswig, managing director at Citi Research, New York, said she is encouraged by Costco’s expansion plans.
“As prospects in large markets dwindle, we believe Costco can find growth and higher return-on-invested-capital through international, as well as [moving into] smaller domestic markets, and that momentum should continue beyond fiscal 2013,” she said.
Charles Grom, an analyst with Sterne Agee, New York, said Costco’s financial metrics are solid, with core comparable-store sales of 5% to 6% likely to be sustainable for the next few years, driven primarily by traffic increases of 4% to 5%.
“Investments in the last few years in price, gas stations and private brands, along with a renewed focus on nonfood categories and organics, keeps the Costco momentum rolling,” he noted.
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“The key difference today under Jelinek is that Costco is finding buckets of SG&A savings and, along with its bump in member-fee income, is choosing to be proactive to maintain its healthy traffic levels.”
Another industry observer also said Costco has become more promotional, “with virtually daily outbound promotional emails.
“That may be a holdover from Jim Sinegal [Jelinek’s predecessor], who learned that, despite the company’s strong reputation and price position, the American consumer responds to promotions.”
Going forward, he said Costco has to be concerned with the shift to Internet shopping and the lower retails that allows, and the pressures from same-day-delivery services such as Amazon.
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