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.

Retail Analysis weekly newsletter

Keep up-to-date with the latest retail developments shaping the industry. International and UK editions available.

Sign up for our newsletter »

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.

Sign-up here to receive our free newsletter that will keep you up-to-date about the latest news and developments from Spain.

We review Costco’s fourth quarter performance, including the continued growth of its ecommerce business.

Costco: the key numbers

• Costco’s fourth quarter total revenue increased by 5.0% to $44.4bn
• Over the period, comparable store sales, excluding currency and fuel impacts, increased by 7.2%
• Net income increased 13.5% in the quarter to $1.0bn
• For the full year, total revenue increased by 9.7% to $141.6bn. Net income over the period increased 17.0% to $3.1bn

Visit frequency up in all markets

Costco continues to out-perform its wholesale cub peer group, while its comp sales performance was ahead of most major retailers in the US. Visit frequency was up 4.9% across all markets, reflecting, in part, continued range enhancements in grocery. The retailer has been expanding its fresh food offer and adding more speciality, natural and organic items.

Source: IGD Research

Ecommerce sales up 26%

The business continues to see significant strength with its ecommerce business, with sales up 26.2% in the quarter and up 32.2% for the full year. It is benefiting from both system and operational improvements, range enhancements and its partnership for grocery ecommerce delivery with Instacart in the US.

Costco is also slowly expanding its store pickup programme, adding more electronics items. It has seen a positive benefit from customers using this programme, with over half also making an in-store purchase when picking up their items. Ecommerce sales currently represent just over 4% of the business. The retailer will continue to invest in the infrastructure to support this channel, including its two-day shipping programme.

Taking action to mitigate impact of tariffs

US tariffs remain top of mind for the retailer. It is taking several actions to mitigate their impact. These include accelerating shipments before they go into effect, working with suppliers to reduce costs, reducing volumes on some items and sourcing from alterative countries where possible. Costco is also able to take advantage of lower US pricing on some items which have been impacted by Chinese tariffs.

Retail Analysis weekly newsletter

Keep up-to-date with the latest retail developments shaping the industry. International and UK editions available.

Sign up for our newsletter »