Costco net sales up nearly 17% in first fiscal quarter

Continued pandemic-related demand for groceries and household supplies led Costco Wholesale to a strong fiscal first quarter 2021 ending Nov. 22, with net sales rising 16.9% over the year-earlier period, to $42.35 billion.

Comparable sales in the United States rose 14.6% (17% adjusted, excluding fuel and foreign exchange), while e-commerce sales rose 86.4% (86.2% adjusted).

Reported net income for the quarter came in at $1.166 billion or $2.62 per share, compared to $844 million or $1.90 per diluted share last year. This year’s first quarter included tax benefits of $145 million or $0.33 per diluted share, $0.16 of which was due to the deductibility of the $10 per share special cash dividend, to the extent received by the company’s 401(k) plan participants; and $0.17 related to stock-based compensation. Last year’s first quarter included a $77 million or $0.17 per diluted share tax benefit related to stock-based compensation. This year’s results reflect an expense for COVID-19 premium wages of $212 million pre-tax or $0.35 per diluted share.

In a conference call with analysts late Thursday, Richard Galanti (left), executive vice president and chief financial officer at Costco, offered insights into the first-quarter performance, including memberships.

Related:Costco builds holiday sales momentum with strong November

“Membership fee income came in at $860.9 million, up $57 million or 7.1%.,” he noted. “During the quarter, we opened eight new units. In terms of renewal rates, our U.S. and Canada renewal rate as of the end of Q1 '21 was 90.9%. That compares to a quarter ago of 91%. And worldwide, it was 88.4%, which was the same as it was a quarter ago.”

In terms of number of members at Q1 end, total paid households at Q1 end was 59.1 million, up from 12 weeks earlier Q4 end of 58.1 million. Total cardholders at Q1 end was 107.1 million, compared to 12 weeks earlier at 105.5 million.

“Looking at core merchandise categories in relation only to their own sales, core and core, if you will, margins year over year in the quarter were higher by 65 basis points,” Galanti said. “Fresh foods was again the biggest driver here. With strong sales in fresh, we benefited from efficiency gains in labor productivity and significantly lower product spoilage.

“Food and sundries, softlines and hardlines, the other three main core components, all had higher margins year over year in the quarter as well, but fresh foods was the driver.”

Total online grocery grew at a very strong rate in Q1, nearly 300%, according to Galanti, who noted that the 86.2% e-commerce figure follows Costco’s usual convention, “which excludes third-party same-day grocery programs as they come in themselves and shop in our warehouses and then deliver to our members. If we include the third-party same-day in our e-commerce comps, the 86.2% result would have been just over 100%,” he said.

Related:Costco to pay stockholders $10-per-share special dividend

“From a supply chain perspective, a 40,000-foot view, if you will, most factories are up and running at our suppliers, and in many cases, production capacity has been increased,” Galanti said. “However, even higher increases in demand of some products are still creating some supply issues. There are instances of 50%, 100% or even more sales increases of an item.”

He added, “In terms of food and sundries, demand and sales went up as COVID began spiking again. Our toughest areas are nitrile gloves, surface-cleaning wipes and sanitizing sprays. Also, in some cases, some paper goods. Overall, dairy items are in good shape, as well as proteins and produce on the fresh side.”

Costco currently operates 803 warehouses, including 558 in the United States.

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