Costco adds to last year’s pandemic-driven gains in fiscal 2021

Costco Wholesale built on year-ago gains with double-digit net and comparable sales growth for its fiscal 2021 fourth quarter and full year, with earnings per share coming in at the high end of Wall Street’s forecast.

For the 16-week quarter ended Aug. 29, net sales totaled $61.44 billion, up 17.5% from $52.28 billion a year earlier, Issaquah, Wash.-based Costco reported yesterday after the market close. The increase came atop a 12.5% uptick in the fiscal 2020 quarter.

Membership fee income rose 11.7% to $1.23 billion, more than doubling the 5.3% gain recorded in the prior-year period. Total paid member households increased 18.2% to 61.7 million since the previous quarter, while the total cardholder count grew 16.4% to 111.6 million quarter-to-quarter.

Overall comparable sales in the quarter climbed 15.5% year over year (9.4% adjusted, excluding fuel and foreign exchange), reflecting gains of 14.9% in the United States (10.3% adjusted), 19.5% in Canada (6.7% adjusted) and 15% internationally (7.3% adjusted). A year ago, Costco reported that comp sales rose 11.4% (14.1% adjusted), including an increase of 11% in the U.S. (13.6% adjusted).

“In terms of Q4 comp sales metrics, traffic or shopping frequency increased 9.2% worldwide and 8.8% in the U.S. Our average transaction or basket was up 5.8% worldwide and 5.6% in the U.S. during the fourth quarter,” Chief Financial Officer Richard Galanti told analysts in a conference call late Thursday. “Those numbers include the positive impact from gas, inflation and FX. Foreign currencies relative to the U.S. dollar positively impacted sales by approximately 230 basis points, whereas gasoline price inflation positively impacted sales by approximately 385 basis points.”

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U.S. club traffic rose 8.8% in the fourth quarter, while average basket size grew 5.6%.

Gross margin for Costco’s core merchandise declined 90 basis points year over year and was down 57 basis points excluding fuel inflation.

“Similar to last quarter, this is primarily a function of sales shifting from core to ancillary versus the last year as we begin to revert back to more historical sales penetrations. Recall last year we saw significant shift of sales out of ancillary and other businesses and into the core,” Galanti explained.

“In terms of the core margin on their own sales in the fourth quarter, the core-on-core margins were lower by 40 basis points, with nonfood slightly up, food and sundries slightly lower year over year,” he said. “Fresh foods was down and was the fundamental driver of the core-on-core being lower in the quarter. Now, fresh foods is lapping exceptional labor productivity and low product spoilage that occurred from the outside sales a year ago in Q4. We retained some of that productivity gain. Some of those productivity gains as volumes have remained high. However, we’ve also elected to hold, delay and/or mitigate some of the price increases in this increasingly inflationary environment over the last few months.”

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Ancillary and other businesses gross margin advanced 44 basis points and was higher by 53 basis points excluding fuel. “Gasoline had a good quarter, as we are lapping year-over-year a softer quarter due to the pandemic,” Galanti said. “We also showed improvement in food court, optical, travel — all of which were benefited by easy compares versus last year due to the impact of COVID on those businesses.”

On a comp basis, e-commerce sales for the 2021 fourth quarter were up 11.2% overall and 8.9% excluding foreign exchange. That came after big pandemic-driven gains of 90.6% overall and 91.3% excluding foreign exchange a year ago. 

“Stronger departments [included] jewelry. We actually sold a couple of rings in the $100,000 range. Home furnishings was strong, pharmacy was strong and sporting goods was strong. A couple of other large departments like majors and electronics, while very good sales, we had really outsized sales a year ago in the fourth quarter during COVID,” Galanti said.

Bulk-size product online sales via the Costco Logistics arm surged 130% year over year for the fourth quarter and represented 24% of all sales on Costco’s U.S. e-commerce site, compared with 11% a year earlier.

“In terms of our e-com app, we have over 10 million downloads. It’s continually improving, with additional features coming soon,” Galanti said. “Digital payment using the Costco credit card is in pilot in several locations, with a full rollout by the middle of next month. The ability to view warehouse receipts online also [coming] next month, more detail on online purchase as well. And by October’s end, an improved mobile site, improved look and feel, a new landing page and expanded information both for dot-com use and for enhanced warehouse information.”

For the 2021 fiscal year, net sales came in at $192.05 billion, up 17.7% from $163.22 billion in fiscal 2020, when the company had recorded a 9.3% gain. Full-year comp sales for the 52 weeks grew 16% overall (13.4% adjusted, excluding fuel and FX), reflecting increases of 14.8% in the U.S. (13.6% adjusted), 20% in Canada (12.1% adjusted) and 19.1% internationally (13.4% adjusted). A year earler, Costco recorded that comp sales advanced 7.7% overall (9.2% adjusted), including a gain of 8.2% in the U.S. (9.2% adjusted).

Fiscal 2021 e-commerce sales jumped 44.4% (42.6% excluding FX) on a comparable basis, building on a gain of 49.5% (50.1% excluding FX) in fiscal 2020.

Fuel revenue climbed in the fourth quarter as Costco cycled lower gas prices in 2020 due to the pandemic.

At the bottom line, Costco’s 2021 fourth-quarter net earnings totaled at $1.67 billion, or $3.76 per diluted share, compared with $1.39 billion, or $3.13 per diluted share, a year ago. Results include a pretax negative impact of $84 million, or 14 cents per diluted share, from an IT asset write-off, the retailer said. The 2020 quarter had negative impacts per diluted share of 47 cents from COVID-19 premium wage and sanitation costs and 6 cents from debt prepayment, partially offset by a 15 cents-per-diluted-share benefit from the partial reversal of a reserve related to a product tax assessment taken in fiscal 2019.

Analysts, on average, had forecast fourth-quarter adjusted EPS of $3.57, with estimates ranging from a low of $3.23 to a high of $3.79, according to Refinitiv.

For the full 2021 fiscal year, Costco’s net income totaled $5.01 billion, or $11.27 per diluted share, versus $4 billion, or $9.02 per diluted share, in 20202. Analysts’ consensus estimate was for adjusted EPS of $10.72, with projections running from a low of $9.90 to a high of $11.70, according to Refinitiv.

During fiscal 2021, Costco opened 22 warehouse clubs, including two relocations, resulting in a net gain of 13 for year.

“This year, we’re looking to open at least 25 net new units, including second warehouses in each of China and France and our first location in New Zealand. As well, we plan to relocate five locations,” Galanti said.

Costco now operates 817 warehouse clubs, up from 795 a year ago. That includes 565 clubs in the U.S. and Puerto Rico, 105 in Canada, 39 in Mexico, 30 in Japan, 29 in the United Kingdom, 16 in Korea, 14 in Taiwan, 13 in Australia, three in Spain, and one apiece in Iceland, France, and China. Costco also operates e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan, and Australia.