Digital sales surge lifts Costco in November

A jump in e-commerce sales contributed to slightly improved sales results at Costco Wholesale for November.

For the four weeks ended Nov. 26, net sales grew 5.1% to $20.14 billion from $19.17 billion a year earlier, Costco reported Wednesday after the market close. The gain topped the 4.5% year-over-year increase in October and built on a 5.7% increase in November 2022.

In 12-week year-to-date period, Costco saw net sales rise 6.1% to $56.71 billion from $53.44 billion a year ago. The Issaquah, Washington-based warehouse club chain noted that year-to-date net sales received a 0.5% to 1% lift in the United States and internationally from a calendar shift adding a 53rd week to its 2023 fiscal year.

Total comparable-club sales rose 3.5% year over year and were up 4.4% excluding changes in gas prices and foreign exchange (FX) rates, Costco said. That bested the 3% comp-sales gain ( 3.4% excluding fuel and FX) for October and came atop 4.3% growth ( 5.3% excluding fuel and FX) in November 2022.

Among Costco’s business units, November comp sales advanced 1.8% in the United States ( 3% excluding fuel and FX), 4.4% in Canada ( 7.9% excluding fuel and FX) and 11.7% internationally ( 8.8% excluding fuel and FX), according to Costco.

November marked an e-commerce sales resurgence for Costco, as online sales climbed 9.9% ( 9.8% adjusted) year over year. That followed some up-and-down months for the retailer’s digital business, including an increase of 3.7% ( 3.4% adjusted) in October, a 3.7% gain ( 3.5% adjusted) in September, a 2.5% decrease (-2.2% adjusted) in August and a 4.1% uptick ( 4% adjusted) in July. Those numbers had ended eight straight months of digital sales declines. For November 2022, e-commerce sales rose 4.3% year over year ( 5.3% adjusted).

Related:Grocery, fresh food spur Costco’s October comparable-sales growth

“Our comp traffic, or frequency, for November was up 4.8% worldwide and 3.7% in the U.S.,” Josh Dahmen, assistant vice president of finance and investor relations at Costco, said in a phone report late Wednesday. “Worldwide, the average transaction was down about 1.3%, which includes the impacts from gas, deflation and FX,” he added.

In October, comparable traffic grew 4.1% worldwide and 2.9% in the U.S., and the average transaction shrank 1%.
“Gas price deflation negatively impacted total reported comp sales by approximately 1.1%,” Dahmen said in the November sales report. “The average worldwide selling price per gallon was down approximately 9% versus last year.”

Relative to the U.S. dollar, FX rate fluctuations gave a 0.2% lift to Costco’s overall net and comp sales for November, including a negative impact of 2.4% in Canada but a 3.7% positive impact internationally.

Related:Ron Vachris to take Costco CEO reins from Craig Jelinek

Costco’s top-performing U.S. regions by comp-sales in November were the Northeast, the Southeast and Texas, Dahmen said. The leading international comp-sales results for the month came from Mexico, Spain and Korea.

Customers emphasizing the essentials

As in the broader retail marketplace, Costco members focused their purchases more on staples versus discretionary items as consumers overall grapple with an unsettled economic climate. Excluding the impact of FX, groceries and fresh food again were growth catalysts among Costco’s core merchandise categories for November.

“Food and sundries were positive mid-single digits. Sundries, food and cooler were the strongest departments. Fresh foods were up high single digits. Better-performing departments included produce and bakery,” according to Dahmen. “Nonfoods was positive low single digits. Better-performing departments included jewelry, tires and health and beauty aids. Weaker departments were sporting goods, media and office supplies. Ancillary business sales were negative low single digits. Pharmacy, food court and optical were the top performers, offset by gasoline, which was down high single digits.”

William Blair & Co. analyst Phillip Blee also noted shoppers’ nondiscretionary spending preferences in a research note on Thursday.

“The deceleration in comps on a multiyear stacked basis was in line with our fiscal first-quarter expectations,” he wrote, “given deflationary pressures in pockets of fresh foods and general merchandise, lower consumer demand for high-ticket categories, and tough comparisons, particularly given the company’s unique efforts (e.g. leasing three ships and thousands of containers) to maintain in-stock levels during holidays in the pandemic-era, while smaller scale peers suffered from low inventory availability.”

Costco’s e-commerce business was less affected by the nondiscretionary sales trend, Blee added.

“Adjusted e-commerce comparable sales increased 9.8% during November, representing the strongest gains in 15 months,” he noted. “E-commerce comps maintain a greater exposure to discretionary, large-ticket hardline categories and do not include sales related to [Costco’s] same-day delivery offering through Instacart, which skews toward higher-growth areas such as grocery. We are incrementally encouraged by the company’s continued improvement in e-commerce comps that underscores the inflection in nonfoods categories during the month and suggests a continued inflection throughout the all-important holiday season.”

Homage to an investing icon

In its November sales report, Costco cited the recent passing of investing legend and board member Charles Munger, vice chairman of Berkshire Hathaway, who died Nov. 28 at age 99.

“No one loved Costco more than Charlie,” Costco CEO Craig Jelinek said in a statement. “The company benefited greatly from his wisdom over the last quarter-century-plus. We at Costco extend our deep condolences to his family.”

Jelinek is slated to be succeeded by President and Chief Operating Officer Ron Vachris next year.

Currently, Costco operates 870 warehouse clubs, compared with 845 a year ago. By market, the company has 599 clubs in the U.S. and Puerto Rico, 108 in Canada, 40 in Mexico, 33 in Japan, 29 in the United Kingdom, 18 in Korea, 15 in Australia, 14 in Taiwan, five in China, four in 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.