Wholesale Clubs Were a Winner in Q1: Coresight

Wholesale clubs came out winners as retail giants struggled in the year's first fiscal quarter, new analysis from New York-based Coresight Research shows.

Warehouse clubs recorded strong performances despite inflation running at 40-year highs, with both BJ’s and Costco posting double-digit sales growth year over year, Coresight noted in its first-quarter earnings wrap-up report.

BJ’s sales at the start of 2022 were up 14.4% year over year, and comp sales, excluding gasoline, increased 4.1%, "driven by significant gains in traffic and market share," according to the report's authors. Further, they wrote, BJ's comp sales in groceries, perishables and sundries were up 7% year over year.

And as shoppers continue to look for ways to stretch their dollars, Issaquah, Wash.-based wholesaler Costco saw its U.S. comp sales, excluding fuel, climb 10.7% year over year.

By contrast, Walmart reported comp sales growth of 3% year over year while Target’s comp sales increased 3.3% in the first quarter of the retailers' respective fiscal years. Shoppers' shifts in spending from general merchandise to consumables, along with higher-than-expected supply-chain costs, pummeled both Target and Walmart in 2022's opening months. The pressure for large retailers is not likely to let up soon: With inflation remaining hot and continued global supply-chain headwinds anticipated into 2023, "elevated costs will continue to affect profitability in 2022," Coresight's analysts wrote.

A number of traditional grocery retailers, including Albertsons Cos. and Sprouts Farmers Market, struggled with gross margins in the first quarter, too. Gross margin for Sprouts was flat year over year at 37.3%, Coresight noted, and Albertsons' gross margin fell 20 basis points year over year to 28.7% because of spikes in product costs resulting from inflation and supply-chain pressures. Looking ahead through the rest of the year, retailers are "likely to face an even more challenging growth environment amid increased expenses and squeezed margins," Coresight commented.

In better news for grocery retailers, at-home dining remains strong as consumers embrace home-prepared—or at least partially home-prepared—meals as a cost-saving measure. Bakery and deli departments, with their ever-more prominently displayed selections of fresh-prepared and grab-and-go meals and sides, performed well in the first fiscal quarter. And as consumers prioritize their grocery dollars, fresh departments are seeing healthy dollar sales, too. For Albertsons, "the company's fresh department comp sales outpaced center-store sales by 280 bps year over year," Coresight reported, "as the company automated production planning and simplified tasks in its fresh departments, resulting in better quality, higher in-stock rates and more time for customer interactions."