Costco Seeks to Delay Retail Price Increases

ELLIOT ZWIEBACH

ISSAQUAH, Wash. — Costco Wholesale Corp. here plans to hold the line on inflationary price increases for as long as possible before passing them along, Richard Galanti, executive vice president and chief financial officer, said here last week.

The company takes advantage of every forward-buy opportunity manufacturers offer when a price increase occurs, he said, “as we assume many retailers do. But then we probably hold the price longer than anybody else.

“We tend to be the strictest and try to hold it a little bit when we can, especially given that we have some relatively strong margin improvements in other areas. We're our own toughest competitor, and we're in a pretty good position to be able to delay passing on increases for short periods.

“We realize a lower margin for several weeks or a few months and then, finally, bring the price up to the next level and get back to the regular margins, and once we get there, we're fine.”

Galanti made his remarks during a conference call with analysts to discuss financial results for the second quarter and first half, which ended Feb. 13.

Net income for the 12-week quarter increased 16.4% to $348 million, while sales climbed 11.4% to $20.5 billion and comparable sales, excluding gasoline, rose 4% overall (3% in the U.S. and 8% outside the U.S.)

Average transaction size increase 3%, and average frequency increased about 3.5% during the quarter, Galanti said.

For the 24-week half, net income was up 16.8% to $660 million, with sales rising 11.3% to $39.3 billion and overall comps increasing 5%, including a 3% comp in the U.S. and a 9% comp elsewhere.

During the quarter, Costco opened two stores — in Burnsville, Minn., and Vancouver, Wash. — at a cost of $234 million; it also closed a location in San Marcos, Calif.

It is scheduled to open a new location in Tucson, Ariz., in mid-April, with 14 additional openings through the fiscal year, including the relocation of the San Marcos unit, at a total cap-ex cost of approximately $1.5 billion.

By year's end, Costco said, it expects to open 24 new stores, including 14 in the U.S., five in Asia, three in Canada and two in Australia — the company's second and third locations there.

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