Costco’s sales growth slows in December but beats Wall Street expectations

Costco Wholesale generated double-digit net and comparable sales growth in December, with the comp-sales gain down from recent months but topping Wall Street’s forecast.

For the five weeks ended Jan. 3, net sales climbed 12.3% to $19.14 billion from $17.04 billion a year earlier, the Issaquah, Wash.-based warehouse club chain reported after yesterday’s market close. The increase marked a slowdown from year-over-year growth of 15.1% in November, 15.9% in October and 16.9% in September.

Comparable-club sales in the December selling period rose 10.7% overall and were up 10.9% excluding the impact of changes in fuel prices and foreign exchange (FX) rates. By business unit, comp sales advanced 9.6% in the United States (11% excluding fuel and forex), 8% in Canada (5.7% excluding fuel and FX) and 19.4% internationally (15.8% excluding fuel and FX). E-commerce sales surged 62.5% on a comparable basis (61.6% excluding FX).

Costco had posted comp sales gains of 13.4% in November (12% in U.S.), 14.4% in October (13.6% in U.S.) and 15.5% in September (14.5% in U.S.).

“Our comp traffic, or frequency, for December was down 0.6% worldwide,” David Sherwood, assistant vice president of finance and investor relations at Costco, said in a conference call late Wednesday. “Traffic was negative in Canada, Mexico and the U.K., related to tougher restrictions due to COVID spikes, and we were up 1.3% in the U.S. Worldwide, the average transaction was up 11.4%, which included a negative impact of 120 basis points from gasoline deflation and 100 basis points of benefit from FX.”

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U.S. regions posting in the strongest sales gains in December were the Southeast, Texas and the Northeast, while Korea, the United Kingdom and Japan saw the biggest gains internationally, Sherwood reported.

“Food and sundries were positive, low double digits. Departments with the strongest results were frozen foods, cooler, sundries and liquor,” Sherwood said of companywide merchandise category comp sales in December, excluding the positive impact of FX. “Fresh foods were up high teens. Better-performing departments included meat and produce. Hardlines were positive high teens, with better-performing departments including sporting goods and majors, including consumer electronics, garden and hardware. Softlines were positive mid-teens. Home furnishings, housewares and small appliances were strong in the month. Ancillary business sales were down by low double digits, primarily due to lower year-over-year sales in gasoline, food court, photo and hearing aids.”

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For the 18 weeks ended Jan. 3, net sales totaled $65.47 billion, up 14.9% from $56.99 billion a year ago. Comparable-club sales in the period grew 13.3% overall and were up 14.5% excluding fuel and FX. In the U.S., year-to-date comp sales rose 12.2% (14.3% excluding fuel and FX), while comps grew 13.7% in Canada (13.3% excluding fuel and FX) and 18.9% internationally (16.9% excluding fuel and FX). E-commerce sales jumped 75.2% on a comparable basis (74.8% excluding FX).

Jefferies analyst Stephanie Wissink noted that Costco’s December comp-sales results were expected to dip but proved to be better than expectations. The monthly increase topped its 7.3% estimate, favorable to Wall Street analysts’ 9.5% consensus projection and Jefferies 9.9% estimate for the second quarter.

Food sales softened in December, while general merchandise’s performance remained robust, according to Wissink.

“Food/sundries of low double-digit percent [growth] — from low-20s in November — was the lowest result since the pandemic,” she wrote in a research note on Wednesday. “Similarly, fresh [food] decelerated from mid-20s to high teens, its lowest level since January. We believe these slowdowns were likely due to less food spending on holiday gatherings — an especially beneficial food buying occasion for club retailers — and also the potential effect of small businesses — namely restaurants — shut down or operating at reduced capacity.”

Digital sales growth remained steady in December, Wissink added. “Core e-commerce decelerated nine points to 62% but remains robust versus historical precedent,” she wrote.

As of Jan. 3, Costco operated 803 warehouse clubs overall, compared with 785 a year earlier. By market, the retailer operates 558 clubs in the U.S. (including Puerto Rico), 102 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain and one each in Iceland, France and China. Costco also has e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.