Fresh Food Boosts Costco's Q1

ISSAQUAH, Wash. — Food, particularly fresh food, is clearly driving the business at Costco Wholesale Corp. here, Richard Galanti, the chain's executive vice president and chief financial officer, said last week during a conference call to discuss financial results for the company's fiscal first quarter.

Food and sundries, which account for half of Costco's business, saw comparable-store sales rise in the high single digits during the quarter, which ended Nov. 23, Galanti said, with dry groceries showing comps in the mid-teens and fresh food close to double-digit gains.

With general merchandise categories weakening, “we brought produce prices down to drive more traffic,” Galanti added — a move that has worked out well, he noted, with produce comps in the double digits.

Net income for the 12-week quarter rose 0.2% to $262.5 million, while revenues jumped 3.7% to $16.39 billion, compared with year-ago results.

Overall company comps increased 1%, with U.S. comps up 3% and international comps down 7%, a reflection of the stronger U.S. dollar. Expressed in local currencies, total comps were up 4%, Galanti pointed out, with the U.S. up 3% and international up 7%.

He said Costco is seeing deflation of 4% to 5% in several food categories, including dairy, breakfast cereals, orange juice and meats, “so we see some headwind on pricing,” he noted; all price reductions will be reflected in lower shelf pricing, he added.

Costco reduced capital spending guidance for the year to a range of $1.5 billion to $1.6 billion, compared with earlier expectations of $1.6 billion to $1.8 billion, Galanti said, with plans to open 24 new warehouses and do two relocations in 2009.