Costco beats Q3 sales forecast on traffic, spending gains

Costco Wholesale late Thursday posted quarterly sales and earnings results that exceeded company and analyst forecasts, saying store traffic and average spending increased during the 12-week period ended May 7.

The Issaquah, Wash.-based warehouse club operator said U.S. and worldwide comps excluding fuel improved by 5% – better than the 3.9% gain expected by analysts – as total sales jumped by 8% to $28.2 billion for its fiscal third quarter. Net earnings of $700 million increased by 28.4%, helped by an $82 million tax benefit related to a special dividend. Earnings per share of $1.59, or $1.40 excluding one-time items, beat analyst expectations of $1.31.

In a conference call discussing results, CEO Richard Galanti said a variety of factors contributed to the stronger results including increases in shopping frequency and the average amount customers spent per transaction. Revenue from membership fees were up by 4% in the quarter and gas sales saw strong sales and profit growth.

Sales of food and sundries and fresh food were each up by low-single digits in the quarter, Galanti said, and benefitted from easing deflation. However, margins for fresh foods were still down slightly due to deflation.

“Deflation has modified a little bit, it still has the ‘de’ in front of it, not the ‘in,’ and so it's still impacting us some,” he said.

Galanti pointed to promising results in private label items like wines and spirits, where its Kirkland Signature lines are showing strong growth and profits.

He predicted Costco’s differentiated offering would provide it insulation from effects of competitors like Amazon and Lidl better than traditional retailers.

“We’re asked a lot about Lidl coming into the East Coast. They're going to take share, but they're going to take share from everybody else a lot more than they can take share from us,” he said.