Costco Q3: coronavirus costs hit profits as sales surge

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 29 May 2020

We review Costco’s Q3 results, including how it’s adapting to a more normalised trading environment.

Key numbers

  • Net sales for the quarter increased 7.3% to $36.5bn
  • Net sales, year-to-date are up 7.8% at $111.0bn
  • Q3 comparable club sales, excluding currency and fuel impacts, were up 7.8%, including growth of 8.0% in the US, 3.0% in Canada and 12.2% in other international markets
  • Ecommerce comparable sales were up 66.1%
  • Net income fell 7.5% to $838m, negatively impacted by $238m from incremental wage and sanitation costs related to COVID-19

Source: IGD Research

Ancillary businesses starting to reopen

In line with most other retailers, Costco reported decreased traffic but larger baskets. Shopping frequency fell by 4.1% globally and by 2.0% in the US, while average ticket was up 9.3%. During the quarter, many of its specialist departments, including optical, hearing aids and photos were closed. These have now started to reopen, with 20% of locations up and running by the end of the quarter. Food courts have remained open but have offered a limited menu. Costco is also aiming to bring back in in-club sampling this month with a differentiated concept.

Adjusting for seasonal events

Top performing categories in Q3 included grocery, fresh foods and essentials. Office and related categories were also strong, reflecting the increased numbers working-from-home. Most discretionary categories were weaker, including jewellery and luggage, and while sporting foods, lawn and garden and patio and clothing were also weak, they started to rebound towards the end of the quarter. Costco has made some adjustments with its buying for back-to-school, Halloween and Christmas, focusing more on core ranges than unique items.

Supply and availability improving

From a supply chain perspective, most factories in China are up and running, while supplies from India and Mexico are improving. In terms of grocery items, paper goods are still on allocation and challenges exist with hand sanitizer and wipes. Fresh proteins are also challenged and item limits have been put in place.

Total ecommerce up over 100%

Ecommerce also grew strongly through the quarter, with growth rates of 25%, 50% and 90% for each four-week period, respectively. The retailer’s reported growth rates excludes sales through third-party delivery services, such as Instacart. Including these sales would have seen growth exceed 100%, representing around 10% of sales.

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