Holiday season impacts Costco’s profits

Date : 06 March 2014

Costco’s second quarter sales increased by 5.8% to $25.8bn, with comparable store sales (ex-fuel and currency impacts) up 5%. Net income attributable to Costco fell by 15.4% to $463m.

Profitability impacted by a range of factors

The key standout within Costco’s results is the decline in net income. A number of factors impacted the retailer’s profitability during the quarter including weaker sales and gross margin results in a number of non-foods categories, particularly during the four-week holiday selling season, weaker gross margins in its fresh foods business, and lower reported international profits, as a result of weakening foreign exchange rates.

First store in Spain opens this Spring

During the quarter the retailer opened three new stores, taking the total year to date to 16 new stores. A further 14 stores will open this year, including six new stores in the US, two each in Japan and Korean and one each in Canada, the UK, Australia and Spain. This latter store opening marks the retailer’s first opening in the country, and represents the start of an accelerated European expansion plan. Over the next two years, Costco is also expected to open its first stores in France.

Ecommerce sales up 20%

During the quarter, ecommerce sales were up 20% year-on-year, with the retailer continuing to benefit from the investments which have been made over the last 18 months in this area. These include re-platforming the site, launching new mobile apps and adding new categories to ecommerce including apparel and health and beauty. The retailer has also invested in its infrastructure to improve shipping times, through pushing ecommerce through three distribution centres, compared to one previously. It also continues to innovate in this area, partnering with Google Express in the San Francisco area to sell its store offer online, an interesting development given that current online offer consists of a unique set of products.

As Costco prepares to open in Spain, we review its growing international presence, how it seeks to create a truly global format, and which markets it may target next. Click
here to view our analysis.