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Costco delivered another solid quarter. We look at the drivers behind its performance and ecommerce development plans.

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Costco in Australia has seen revenue grow by 14% to AU$1.8bn (US$1.3bn) in the 12 months to 3 September 2018.

New stores and LFL growth boost sales

The retailer continues to see good growth in Australia, aided by both new store openings and like-for-like (LFL) growth of between 5% and 6%. As well as strong revenue growth, Costco saw net profit more than double to AU$29.5m (US$21.0m), aided by a one-off credit. The retailer opened two new stores in FY18, taking its total to 10 trading stores.

More stores, a new DC and online launch planned for 2019...

The retailer has strong plans for continued expansion in 2019, with two new stores expected to be added, the launch of an online platform, plus the opening of its new distribution centre, which is under construction in Sydney. The new centre is understood to have capacity to service up to 30 Costco's nationwide and will aid fulfilment of online orders. Although details of the online rollout are unclear, Costco's managing director, Patrick Noone, has confirmed that the service would be available in every state capital city.

For subscribers wanting to see how its operations in Australia fit into its global strategy, see our strategic outlook insight presentation for Costco.

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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infoRETAIL reports that Costco Wholesale plans to open a third store in Spain in 2019.

Potential to expand in Spain

James Cheesemore, Costco Europe's real estate director said that “Spain has a highly developed retail market and offers good opportunities for expansion and scalability”. Once the urban planning license has been obtained, the US-based group plans to open its third store in Madrid, in 2019.

Costco’s two current stores are in Seville and Madrid, opened in 2013 and 2016 respectively. The wholesaler is also reportedly looking to expand into more Spanish cities during 2020 and 2021. It will use Broadway Malyan’s architectural services in Spain over the next 15 years.

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An essential summary of trading priorities, latest developments, and other key commercial insights for Costco.
We review the outlook for Costco over the next five years and identify the company' top growth markets, including US, Canada, Mexico and UK. We look in-depth at its global strategic objectives across its wholesale and club store estate and how it is investing in its ecommerce operations, enhancing its technology and developing its range as it looks to grow revenues beyond US$200bn by 2023.
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