Costco’s profits dip in Q2

Date : 03 March 2016

We review Costco’s performance as it reaches the halfway point of its financial year.

Canada leads Costco’s sales growth

Costco’s second quarter sales increased by 2.6% to $27.6bn, with comparable store sales up 5%, excluding currency and fuel impacts. The retailer saw the strongest performance in Canada, where comp store sales increased by 10%. Other international markets delivered a solid performance, up 6%, while sales in the US were up 4%. Profits were under pressure during the quarter, with net income attributable to Costco down 8.7% to $546m.

Investing in IT transformation

Costco’s profits continue to be impacted by its investments in IT transformation. This is expected to ease over the next couple of years. The retailer is currently undertaking a major re-platforming of its systems which will provide the foundation for a stronger digitally-enabled strategy going forward. Ecommerce continues to grow strongly, supported by range expansion and its ongoing partnerships with Instacart and Google Express. The retailer is also undertaking additional investment in labour pay rates, particularly bottom of the scale rates, which will impact profitability for the next two quarters.

New store openings will ramp up in the second half

During the quarter only one new outlet was opened, representing its lowest number of openings in a quarter for several years. This is mainly a function of planning lead times and the retailer is on track to open 30 new stores this year. The bulk of these, 21, will be in the US, along with three in Canada, two in Japan and one each in Spain, Australia, Taiwan and the UK. These will underpin stronger sales growth in the second half along with membership recruitment.

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