Costco Q1: off to a strong start

Date : 14 December 2018

Costco’s first quarter results reveal a strong start to its new financial year. We look at the drivers of growth, including its fast-growing ecommerce operation.

Traffic and membership renewals improve

Costco’s first quarter net revenue increased 10.2%, with comparable store sales (ex-fuel and currency impacts) up 7.5%. Growth was driven by the US, with comp sales up 8.3%. The retailer also saw a continuation of sales trends within its ecommerce operations, with sales up 26.2%. Net income in the quarter was up 19.8% to $767m. Costco benefitted from stronger traffic, up 4.9% globally and 5.2% in the US, along with higher membership renewal rates. This highlights the compelling nature of Costco’s offer.

Source: IGD Research

Encouraging results from club pickup pilot

Costco’s ecommerce operation benefitted from record sales during Black Friday and through to Cyber Monday. The strongest performing categories were grocery, health and beauty, consumer electronics, hardware and automotive. During the quarter it launched a refreshed website for home categories with a focus on creating an easier online shopping experience. The retailer has expanded its store pickup pilot with additional items and is testing in-club lockers. Initial results are positive, suggesting the programme will be expanded.

Gross margin under pressure

Gross margin fell marginally in the quarter. This was drive in part by pricing initiatives to drive sales across special items and more competitive pricing in fresh food categories. This has come from both supermarkets and Sam’s Club. The retailer’s fast-growing ecommerce operation is also having an impact, however, it views its investments as a long-term play which will deliver incrementality and stronger loyalty.

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