July brings improved sales at Costco

Costco Wholesale rebounded with a stronger sales performance in July, turning around disappointing net and comparable sales results from the previous month and building on double-digit gains a year ago.

Net sales climbed 4.5% to $17.60 billion for the four weeks ended July 30 from $16.85 billion a year earlier, Costco reported Wednesday after the market close. That improved on a 0.4% year-over-year uptick in June and came atop a 10.8% increase in July 2022.

For the fiscal year to date, Costco tallied net sales of $214.53 billion, up 4.6% from $205.19 billion a year ago, when the warehouse club chain saw a 16.4% gain for the 48-week period.

Overall comparable-club sales rose 2.5% in July and were up 5% excluding changes in gas prices and foreign exchange (FX) rates, the Issaquah, Washington-based retailer said. The result marked a reversal from a 1.4% comp-sales decrease ( 3% excluding fuel and FX) for June and built on a 10% jump ( 7% excluding fuel and FX) in July 2022.

Among Costco’s business units, July comp sales grew 1.3% in the United States ( 4.5% excluding fuel and FX), 2.7% in Canada ( 6.7% excluding fuel and FX) and 8.9% internationally ( 5.7% excluding fuel and FX), Costco said.

Online sales were back on the upside after eight straight months of decreases. July e-commerce sales rose 4.1% companywide (4% on an adjusted basis) after 2023 declines of 0.7% year over year in June (-0.4% on an adjusted basis), 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). For July 2022, online sales advanced 10.2% year over year ( 11.5% adjusted).

Costco’s July sales numbers benefited from a holiday calendar shift, noted Josh Dahmen, assistant vice president of finance and investor relations.

“July had one pre-Fourth of July shopping day this year versus no pre-holiday shopping days last year,” he said in a phone report late Wednesday. “We estimate that this positively impacted July 2023 U.S. total and comparable sales by a little more than 75 basis points and worldwide total and comparable sales by a little more than 50 basis points.”

Club traffic and basket size get better, grocery comps lead categories

In-store traffic and customer transaction metrics improved in July, according to Dahmen.

“Our comp traffic, or frequency, for July was up 6.1% worldwide and 6.4% in the U.S.,” Dahmen said, later adding, “The average transaction was down about 3.4%, which includes the negative impact from gas deflation and the positive impact from FX.”

In June, comparable traffic grew 4.2% worldwide and 3.6% in the U.S., while the average transaction fell 5.4%.

“Gas price deflation negatively impacted total reported comp sales by approximately 2.8%,” Dahmen reported. “The average worldwide selling price per gallon was down approximately 17% versus last year worldwide.”

Relative to the U.S. dollar, FX rate changes lifted Costco’s overall net and comp sales by 0.3% for July, reflecting a 2.2% negative impact in Canada and a 5% boost internationally.

Comp-sales performance leaders by U.S. region in July were the Northeast, Southeast and Texas, Dahmen said, while Mexico, Spain and Korea generated the strongest international results.

“Year-over-year inflation for food and sundries continues to decrease and was lower than in June,” he said. “Year over year, fresh food inflation has remained at historically normal levels, in the low single digits.”

As at other big-box retailers, Costco saw groceries continue to lead in comp-sales growth (excluding the impact of FX) among core merchandise categories in July, as shoppers have tempered discretionary spending and focused on purchasing essentials.

“Food and sundries were positive in the high single digits. Sundries, candy and food were the strongest departments. Fresh foods were up high single digits; better-performing departments included bakery and meat,” said Dahmen. “Nonfoods was negative low single digits. Better-performing departments included jewelry, tires, and health and beauty. Weaker departments were sporting goods, housewares, and lawn and garden. Ancillary business sales were down high single digits. Food court, pharmacy and optical were the top performers. Gasoline was lower, driven by the average price per gallon.”

Costco now operates 858 wholesale clubs, compared with 834 a year earlier. By market, the company has 590 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 apiece in China and Spain, two in France, and one each 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.

“Demand for discretionary, general merchandise categories continues to soften, and comps decreased in the low-single-digit range, consistent with the prior three months. However, demand for necessities remains healthy, and comps for groceries, sundries and fresh foods increased in the high-single-digit range,” William Blair analyst Phillip Blee said in a research note Friday on Costco’s July sales. “We see particular cause for optimism in the ongoing gains in membership productivity and loyalty, evidenced by robust comps across non-discretionary categories despite deflationary pressures, as food and sundries costs decreased year over year and sequentially from June.”

Blee noted that Costco may have turned a corner on the e-commerce front with its July sales gain.

“Adjusted e-commerce comparable sales increased by 4%, representing the first shift back into growth territory since October 2022,” he wrote in his report. “E-commerce comps maintain a greater exposure to discretionary, large-ticket hardline categories—such as appliances, electronics, seasonal and home furnishings—and do not include sales related to its same-day delivery offering through Instacart, which skews toward higher-growth areas such as grocery. We believe the inflection in e-commerce could be an early sign of normalizing demand for larger-ticket, discretionary items.”

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