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

Costco Wholesale kept sales on the upside in October but at a slower pace in annual and sequential comparisons, with online sales growth virtually mirroring the prior-month gain.

For the four weeks ended Sunday, net sales rose 4.5% to $18.53 billion from $17.73 billion a year earlier, Costco reported Wednesday after the market close. The uptick trailed the 6% year-over-year net sales gain in September and came against a 7.7% increase in October 2022.

The eight-week year-to-date period saw Issaquah, Washington-based Costco lift net sales by 5.3% to $36.5 billion from $34.74 billion a year ago.

Overall comparable-club sales advanced 3% year over year and were up 3.4% excluding changes in gas prices and foreign exchange (FX) rates, Costco said. That fell short of the 4.5% comp-sales gain ( 3.7% excluding fuel and FX) for September and came atop 6% growth ( 6.7% excluding fuel and FX) in October 2022.

Among Costco’s business units, October comp sales edged up 1.1% in the United States ( 2.2% excluding fuel and FX), 8.5% in Canada ( 9.5% excluding fuel and FX) and 8.2% internationally ( 4.1% excluding fuel and FX), according to Costco. Canada was Costco’s only business unit to ring up higher comp-sales growth in October.

E-commerce sales stayed on the growth path in October following some up-and-down months. Online sales for the month climbed 3.7% ( 3.4% adjusted) following a 3.7% uptick ( 3.5% adjusted) in September, a 2.5% decline (-2.2% adjusted) in August and a 4.1% increase ( 4% adjusted) in July, which had capped off eight straight months of digital sales declines. For October 2022, e-commerce sales had dipped 0.7% year over year ( 1.6% adjusted).

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“Our comp traffic, or frequency, for October was up 4.1% worldwide and 2.9% 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%, which includes the impacts from gas deflation and FX,” he added.

In September, comparable traffic gained 4.9% worldwide and 4.5% in the U.S., while the average transaction dipped 0.3%.

“Gas price deflation negatively impacted total reported comp sales by approximately 1%,” Dahmen noted. “The average worldwide selling price per gallon was down approximately 7% versus last year.”

Relative to the U.S. dollar, FX rate changes provided a 0.6% lift to Costco’s overall net and comp sales for October, including positive impacts of 0.1% in Canada and 4.6% internationally.

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Costco’s top U.S. comp-sales results by region in October were the Northeast, the Southeast and Texas, Dahmen reported. The leading international comp-sales performers for the month were Mexico, Spain and the United Kingdom.

Consumer dollars funneled to necessities

Excluding the impact of FX, groceries and fresh food remained growth catalysts among Costco’s core merchandise categories for October, reflecting shoppers’ ongoing focus on staple items versus discretionary goods amid an uncertain economy.

“Food and sundries were positive mid-single digits. Food, sundries and cooler were the strongest departments. Fresh foods were up mid-single digits; better-performing departments included bakery and produce,” Dahmen said. “Nonfood was negative low single digits. Better-performing departments included jewelry, tires and health-and-beauty aids. Weaker departments were office supplies, home furnishings and sporting goods. Ancillary business sales were positive low single digits. Pharmacy, food court and hearing aids were the top performers. Gasoline was down by mid-single digits.”

William Blair & Co. analyst Phillip Blee highlighted Costco members' nondiscretionary spending focus in a research note late Wednesday.

"Demand for discretionary, general merchandise categories continues to soften, where comps decreased in the low-single-digit range, a slight improvement from last month although relatively in line with trends over the prior six months," he wrote. "However, demand for necessities remains healthy, where comps for food and grocery and fresh foods increased in the mid-single-digit range, albeit at a slight deceleration from recent trends on easing inflation."

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Costco's online sales performance also reflects the softer discretionary spend but has continued to improve, Blee added.

"Adjusted e-commerce comparable sales increased 3.7% during the month. E-commerce comps maintain a greater exposure to discretionary, large-ticket hardline categories and do not include sales related to its same-day delivery offering through Instacart, which skews toward higher-growth areas such as grocery," he explained. "Given its recent inflection to positive territory last month after nearly a year of declines, we believe the company is showing early signs of normalizing demand for discretionary items, which is particularly encouraging ahead of the holiday season."

Currently, Costco has 862 warehouse clubs, compared with 842 a year ago. By market, the company has 592 clubs in the U.S. and Puerto Rico, 107 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 apiece in Iceland, New Zealand and Sweden. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

*Editor's Note: Article updated with analyst comment.