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Costco’s sales remain on upswing in third quarter
CFO says online grocery continues to “grow nicely”
Russell Redman
June 1, 2018
3 Min Read
Revenue and comparable-store sales grew by double digits in the fiscal 2018 third quarter at Costco Wholesale Corp., which edged past Wall Street’s earnings-per-share forecast by a penny.
For the quarter ended May 13, Costco posted net sales of $31.62 billion, up 12.1% from $28.22 billion a year earlier. Membership fees climbed 14.4% to $737 million.
Comp-store sales rose 10.2% overall (7% excluding fuel and foreign exchange). U.S. same-store sales gained 9.7% (7.7% excluding fuel and foreign exchange). Outside the U.S., comp sales were up 11.3% in Canada (4.8% excluding fuel and foreign exchange) and 11.8% internationally (5.8% excluding fuel and foreign exchange).
Store traffic in the third quarter increased 5.1% year over year in the U.S. and internationally, Costco Chief Financial Officer Richard Galanti told analysts in a conference call late Thursday. The average front-end transaction grew 4.9%.
“E-commerce is up 36.8% for the 12 weeks and 35.5% excluding FX, so that continues to be strong,” he said.
Looking at online grocery, Galanti said site traffic conversion rates and orders continued to grow year over year in the third quarter.
“And again, we would expect that to continue at least in the near term,” he added. “Online grocery — our dry grocery two-day delivery and our same-day fresh delivery through Instacart — both of these were rolled out last October and continue to grow nicely.”
Costco also has hatched a new in-store concept to further its omnichannel efforts, Galanti told analysts in the call. “We now have in 220 of our roughly 520 U.S. locations what I’ll call e-commerce product showcases and online ordering capabilities,” he said. “All U.S. locations will have something to that effect in place by this year’s upcoming fall holiday season.”
On the earnings side, third-quarter net income came in at $750 million, or $1.70 per diluted share, compared with $700 million, or $1.59 per diluted share, a year ago. Costco noted that net earnings in the prior-year period were positively impacted by an $82 million (19 cents per diluted share) tax benefit related to a $7-per-share special cash dividend.
Analysts, on average, had projected EPS of $1.69, with estimates ranging from a low of $1.58 to a high of $1.77, according to Thomson Reuters.
Galanti also announced in the call that Costco, using some of its savings from federal tax reform, is raising starting wages for U.S. employees from $13 and $13.50 an hour to $14 and $14.50 an hour, effective June 11. “So $1 an hour for entry-level, with all other hourly warehouse employees receiving an hourly increase of anywhere from 25 cents to 50 cents per hour,” he said.
Companywide, Costco opened two warehouse clubs in the third quarter. The company plans 25 openings overall for fiscal 2018, including four relocations. “Of those 21 net new [clubs], a little under two-thirds of them will be in the U.S.,” Galanti said, adding that the four relocations also are in the U.S.
Overall, Costco operates 750 warehouses, including 520 in the U.S. and Puerto Rico, 98 in Canada, 38 in Mexico, 28 in the United Kingdom, 26 in Japan, 14 in Korea, 13 in Taiwan, nine in Australia, two in Spain, one in Iceland and one in France. The company also operates e-commerce websites in the U.S., Canada, the United Kingdom, Mexico, Korea and Taiwan.
