Costco Q1 repeats strong prior-year performance

In its fiscal 2022 first quarter, Costco Wholesale matched its robust sales performance from a year earlier and added to its bottom line.

Net sales the 12-week quarter ended Nov. 21 totaled $49.42 billion, up 16.7% from $42.35 billion in the prior-year period, Issaquah, Wash.-based Costco reported yesterday after the market close. The increase came atop a 16.9% gain in the fiscal 2021 quarter.

Overall comparable sales in the first quarter rose 15% year over year (9.8% adjusted, excluding fuel and foreign exchange [FX]), reflecting increases of 14.9% in the United States (9.9% adjusted), 17.2% in Canada (8.3% adjusted) and 13.4% internationally (10.9% adjusted). A year ago, Costco reported that comp sales advanced 15.4% (17.1% adjusted), including an uptick of 14.6% in the U.S. (17% adjusted).

In the U.S., Costco recorded solid growth in both club traffic and ticket size during the first quarter.

“In terms of Q1 comp-sales metrics, traffic or shopping frequency increased 6.8% worldwide and was up 5.9% in the U.S.” Chief Financial Officer Richard Galanti told analysts in a conference call late Thursday. “Our average transaction or ticket was up 7.7% worldwide and 8.5% in the U.S. during the quarter. Excluding the positive impact from gas inflation and FX, the average ticket was up 2.5% worldwide and 3.5% in the U.S.”

E-commerce sales for the 2022 first quarter climbed 14.3% overall and 13.3% excluding FX, which came after big pandemic-driven gains of 86.4% overall and 96.2% excluding FX a year ago. Top-performing departments included jewelry, tires and home furnishings, while majors — the largest merchandise department by sales, ranging from consumer electronics to TVs to appliances — grew by high single digits in comp sales.

Related:Club channels, online retailers may have the edge in grocery in 2022

Costco Logistics, the warehouse club chain’s bulk-size product online sales arm, saw a 50% jump in deliveries for the first quarter and now represents 70% of all Costco U.S. e-commerce big- and bulk-product shipments.

“We continue to improve our e-comm mobile app with additional features. We’ve redesigned the app header and footer. We’ve updated and improved the menu layout. Our members now have the ability to view warehouse receipts online via both the app and desktop. Our co-branded Citi Visa card can now be linked to the Digital Membership Card and used for payment,” Galanti said. “Members are now able to much more easily reschedule e-comm deliveries in the U.S. and Canada. The same goes for rescheduling returns, with returns pickups.”

CFO Richard Galanti said Costco continues to enhance its e-commerce front end, including the club chain's mobile app.

In the first half of 2022, Costco also will introduce improved labeling of fulfillment methods. “Members will be able to easily see fulfillment options, be it e-comm, same-day and even nearby warehouse availability of a particular item,” he said.

Related:Costco gives Q1 preview in robust November sales report

Costco, too, is providing more e-commerce amenities in its clubs. “We’re rolling out new e-comm kiosks in the warehouse with video signage and easy touchscreen ordering,” according to Galanti. “As well, we’re rolling out e-commerce lockers. Currently in the U.S., we have 112 locations, and we plan to more than double that number during calendar-year 2022.”

The retailer has also expanded its Costco Next e-commerce program, which enables members to buy items at a savings directly from a curated selection of vendors. Costco introduced the program in 2017 with a few brands but recently expanded the offering to 34 brands.

“In terms of e-commerce, there is a program that received some press yesterday called Costco Next,” Galanti said. “In a way, it’s like our warehouse roadshows but online. Currently, there are 34 suppliers — and growing — but it’s still quite small, offering just under 1,000 items with Costco value.”

Membership fee income grew 9.9% to $946 million in the first quarter, topping the prior-year gain of 7.1%. Total paid member households increased 1.3% to 62.5 million since the previous quarter, and the total cardholder count also rose 1.3%, to 113.1 million, quarter to quarter.

"Customers are shopping stores at elevated levels, while e-commerce remains strong and well above pre-pandemic levels," Jefferies analyst Stephanie Wissink wrote in a research note late Thursday. "New e-commerce initiatives include kiosks, storage lockers (112 currently in the U.S., doubling this year) and expanding the Costco Next program, which features an online offering of curated items (now 34 suppliers, with just under 1,000 SKUS) at discounted prices (up to 20% )."

During the rest of fiscal 2022, Costco expects to open 23 new clubs, including four relocations.

At the bottom line, Costco posted 2022 first-quarter net income of $1.32 billion, or $2.98 per diluted share, compared with $1.17 billion, or $2.62 per diluted share, a year earlier.

Analysts, on average, had projected first-quarter adjusted earnings per share of $2.63, with estimates ranging from a low of $2.36 to a high of $2.91, according to Refinitiv.

Costco opened nine new warehouse clubs in the first quarter, including one relocation, for a net gain of eight units. The company finished fiscal 2021 with a net increase of 20 stores, including 22 new clubs and two relocations.

“For the remainder of the year, we plan to open 23 new units, four of which would be relocations, so a net of 19 if all goes as planned,” Galanti told analysts on the call. “It’s been a busy past seven days. We opened our second Costco in France last Saturday, on Dec. 4, followed by our second building in China, which opened yesterday, as well as two buildings opening today, one in the U.S. in Florida and our fourth unit in Spain.”

Galanti said Costco tallied capital expenditures of $1.05 billion in the first quarter and expects to total about $4 billion for fiscal 2022.

“This would represent an increase of more than $400 million over last year’s entire capex figure of $3.6 billion, the largest areas of increase coming from international spending for new warehouse expansion and increased investment in our logistics and e-comm fulfillment operations,” he noted.

Costco currently operates 828 warehouse clubs overall, compared with 803 a year ago. By market, the retailer operates 572 clubs in the U.S. and Puerto Rico, 105 in Canada, 40 in Mexico, 30 in Japan, 29 in the United Kingdom, 16 in Korea, 14 in Taiwan, 13 in Australia, four in Spain, two apiece in France and China, and one in Iceland. Costco also runs e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.