Costco reports 43.5% rise in online sales
Revenue, profits surge for warehouse club giant
Warehouse club giant Costco continued to hold its own against Amazon, boosting its online sales 43.5% in the most recent quarter.
Like most retailers, Costco has been in a battle with e-commerce giant Amazon, which made a significant push into the grocery space when it purchased Whole Foods for $13.7 billion in August.
But as the nation’s third-largest grocery retailer, Costco said in reporting earnings Thursday for the quarter ended Nov. 26 that it continues to get a revenue boost from customers who may initially be drawn in by its food offerings, but then wind up filling their carts with clothing, gadgets and various other items in its aisles.
Costco has also seen online sales soar in the wake of improvements to its website and the launch of two new delivery options in October to ramp up the convenience that has been so critical to Amazon’s success. Additionally, it has introduced the ability for shoppers to buy some items online, including computers and jewelry, and then pick them up at a store.
Still, roughly 95% of Costco’s sales continue to occur in stores, where foot traffic in the U.S. was up 6.6%.
The company said that its sales in the three-month period jumped 13.3% to $31.12 billion, compared with $27.47 billion during that same period last year.
And Costco reported net income of
$640 million, or $1.45 in diluted earnings per share, beating the expectations of analysts with S&P Global Market Intelligence by six cents. That was also a
17% increase from $545 million, or $1.24 in earnings per share, during the same quarter last year.
“We think we can use ... online and emails to drive traffic both ways,” Costco Chief Financial Officer Richard Galanti said in an earnings call with investors Thursday. “We seem to be running on many cylinders here, and the things we’re doing are working.”
The company has been able to keep revenue and profits surging thanks to its membership model, which ushers in fees and guarantees a customer base in the tens of millions. In June, Costco raised its annual fees for roughly 35 million members in the U.S. and Canada. The new charges rose from $50 to $60 for individuals, companies and business add-on members.
Membership fee revenue jumped 9.8% to $692 million in the just-ended quarter, up from $630 million during that period in the previous year. Roughly $24 million of the $62 million uptick was due to the membership fee increases, Galanti said.
Slowing membership growth in recent quarters has worried some investors, along with competition looming from Amazon’s purchase of Whole Foods. Costco trails Walmart, the nation’s biggest grocer, and Kroger. Albertsons ranks fourth, followed by Amazon.
“The biggest concerns over probably the last couple of quarters have been renewal rates ticking down a little bit,” says Brian Yarbrough, an analyst for Edward Jones. But “membership trends and renewal rates are still at the 89% and 90% level ... I think the model continues to work very well. They’ve got food that’s over 50% of their business, and that drives traffic. And they have great deals, and that creates a treasure hunt nature.”
Shares were up 1.32% to $189 a share in after-hours trading.
“We seem to be running on many cylinders here, and the things we’re doing are working.” Richard Galanti Costco Chief Financial Officer