Costco sees little change in June sales

Changes in fuel pricing and foreign exchange (FX) rates, plus lower inflation, contributed to lackluster sales results at Costco Wholesale for June.

For the five weeks ended July 2, net sales inched up 0.4% to $22.86 billion from $22.78 billion a year earlier, Costco reported Thursday after the market close. The gain was less than annual growth in May—when the warehouse club chain tallied a 1.2% net sales increase—but came against a difficult comparison for June 2022, when the top line jumped 20.4% year over year.

Net sales for the 44-week fiscal year-to-date period totaled $196.93 billion, up 4.6% from $188.34 billion a year ago, when Costco reported a 16.9% gain.

Costco’s June comparable-sales performance also reflected tough comparisons to robust prior-year gains.

Overall comparable-club sales fell 1.4% year over year in June but rose 3% excluding changes in gasoline prices and FX rates, the Issaquah, Washington-based retailer said. The result was similar to May’s 0.3% comp-sales dip ( 3.3% excluding fuel and FX) and came against an 18.1% surge (13% excluding fuel and FX) in June 2022.

Across Costco’s business units, June comp sales were down by 2.5% in the United States ( 2% excluding fuel and FX) and by 0.6% in Canada ( 6.5% excluding fuel and FX) yet grew 4.5% internationally ( 5.1% excluding fuel and FX).

Club traffic remained on the rise at Costco in June, including a 3.6% uptick in the U.S. / Photo: Shutterstock

E-commerce sales declined for the eighth consecutive month but showed improvement. June online sales dipped 0.7% annually (-0.4% on an adjusted basis) versus decreases through the calendar year to date of 7.6% in May (-7% adjusted), 5.9% in April (-4.9% adjusted), 12.7% in March (-11.6% adjusted), 11.2% in February (-10.3% adjusted) and 15.4% in January (-14.4% adjusted). That compared with June 2022 e-commerce sales growth 7% year over year ( 8.3% adjusted).

A calendar shift for the Independence Day holiday also impacted Costco’s June sales, according to Josh Dahmen, assistant vice president of finance and investor relations.

“June had one fewer pre-Fourth of July shopping day compared to last year,” Dahmen said in a phone report late Thursday. “We estimate that this negatively impacted June 2023 U.S. total and comparable sales by a little more than 50 basis points and June 2023 worldwide total and comparable sales by a little less than 50 basis points.”

Costco continued to see club traffic increase and the shopper basket decrease in June.

“Our comp traffic, or frequency, for May was up 4.2% worldwide and 3.6% in the U.S.,” Dahmen said, adding, “The average transaction was down about 5.4%, which included the negative impacts from FX and gas deflation.” In May, comparable traffic grew 5.1% worldwide and 4.3% in the U.S., and the average transaction declined 5.1%.

Relative to the U.S. dollar, FX rate changes shaved Costco’s overall net and comp sales by 0.4% for June, reflecting a 4.1% negative impact in Canada and a 1.3% lift internationally, Dahmen reported.

“Gas price deflation negatively impacted total reported comp sales by approximately 4.0%,” he said. “The average worldwide selling price per gallon was down approximately 24% versus last year.”

Fresh food comp sales were a catalyst for the month, with inflation in the segment returning to historically normal levels. / Photo: Shutterstock

In June, the top-performing U.S. regions by comp sales were the Northeast, Northwest and Southeast, while Mexico, the United Kingdom and Korea turned in the strongest international results.

“Year-over-year inflation for food and sundries continues to decrease and was lower than in May,” said Dahmen. “Year over year, fresh food inflation has returned to historically normal levels in the low single digits, consistent with the last couple of months.”

Groceries continued to lead in terms of comp-sales growth (excluding the impact of FX) among Costco’s merchandise categories in June, as the club chain and other big-box retailers fine-tune their product mixes to the changing purchase behaviors of inflation-weary consumers.

“Food and sundries were positive in the high single digits; candy, sundries and food were the strongest departments. Fresh foods were up mid-single digits. Better-performing departments included bakery and produce,” Dahmen said in the phone report. “Nonfoods were negative low single digits. Better-performing departments included tires, health and beauty, and apparel. Weaker departments were toys and seasonal, home furnishings and sporting goods. Ancillary business sales were down mid-teens; food court, pharmacy and optical with the top performers. Gasoline was lower, driven by the average price per gallon.”

Analysts still bullish on Costco

Jefferies analyst Corey Tarlowe noted that Costco’s core comp-sales performance was solid for June, fueled by groceries, perishables and sundries.

“Total comps in June were down 1.4%, but core comps (excluding FX and gas) were up 3%,” Tarlowe wrote in a research note on Friday. Still, he said, Costco’s core comp sales decelerated across all regions in June on a three-year basis. “Core U.S. comps were up 2% year over year and up 21.3% on a three-year stack versus 27.3% in May.”

Meanwhile, Costco maintains a strong positioning with budget-conscious consumers, according to BofA Securities analyst Robert Ohmes.

“We maintain our ‘buy’ [rating] and continue to view Costco as well-positioned given: 1) expected continued warehouse-club market share gains as consumers continue adjust to higher grocery prices, making Costco’s impressive value proposition and price positioning even more attractive,” Ohmes stated in a research note on Friday, “2) private-label leadership (Kirkland Signature) at a time when investment in lower-price-point private-label items will be key to maintaining customer traffic as grocery inflation slows; 3) expanding digital opportunities as members search out online-only offerings (including travel, appliances, etc.) and increasingly benefit from personalization; [and] 4) competitive advantages afforded by Costco’s global sourcing model in both private-label and national brands.”

Currently, Costco operates 855 warehouse clubs, compared with 833 a year earlier. By market, the company has 587 clubs in the U.S. and Puerto Rico, 107 in Canada, 40 in Mexico, 32 in Japan, 29 in the United Kingdom, 18 in Korea, 15 in Australia, 14 in Taiwan, four each in China and Spain, two in France, and one each in Iceland, New Zealand and Sweden. Costco also runs e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.