Costco first quarter not as weak as it seems


Source: Costco Wholesale & Retailing Today

Don’t be fooled by Costco’s tepid sales growth and first quarter profit decline. The company is accelerating expansion and pursuing some intriguing digital partnerships while members continue to renew at record rates.

Costco is planning on a net increase of 32 new warehouses (10 more than last year) during the current fiscal year and 13 of those locations opened during the company’s first quarter ended Nov. 22. Of the 13 new clubs, seven are in the U.S., and of the full year total of 32, 22 will be in the U.S. The company ended the first quarter with 697 clubs, of which 487 are in the U.S., where it enjoys a 91% renewal rate and it executive memberships (those who pay an annual fee of $110) continues to grow.


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Costco Wholesale August Comps, Sales Decline

costcoSource: RTT News


Membership warehouses operator Costco Wholesale Corp. (COST) on Wednesday reported a 1 percent decline in net sales for the month of August from the same period last year.

Comparable sales for the month decreased 2 percent, while it grew 5 percent after excluding the negative impacts from gasoline price deflation and foreign exchange.

The Issaquah, Washington-based company reported net sales of $8.7 billion for the four weeks ended August 30 2015, down 1 percent from $8.8 billion in the same month last year.


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Costco near deal with new credit card issuer

NEW YORK — Costco Wholesale Corp., acknowledging its split with American Express Co., said Friday that it is close to reaching a deal with a new credit card company for exclusive rights to serve the giant retailer’s customers.

Costco should be in a position to announce the new partner “probably sooner rather than later,” said spokesman Bob Nelson, raising the possibility that could happen as early as next week.

The company, based in Issaquah, Wash., east of Seattle, has been talking with several credit card firms for some time in anticipation of a break with AmEx, Nelson said. Last fall, Costco ended its partnership with AmEx in Canada, choosing instead a Capital One MasterCard.

Costco’s efforts to hook up with a lower-cost credit card company have rattled some of its U.S. customers.

“It’s the only reason I have an American Express card,” Tim Young said Friday outside a Costco store in San Juan Capistrano, where he had put his car through the store’s $7.99 carwash and picked up a few odds and ends inside.

As usual, Young said, his purchases included something he had not planned to buy — a pair of jeans he had decided, on the spur of the moment, that his teenage son could use — ratcheting the bill a bit higher.

For the last 15 years, AmEx has been the only credit card accepted at Costco, a membership-only business with 50 million discount-minded customers. The store otherwise accepts only cash or debit cards.

Under the exclusive deal, Costco also heavily marketed its own branded American Express cards to its members, though they were free to use other AmEx cards. Analysts said the relationship has been a boon to both, particularly the New York credit card company.

AmEx said Thursday that the relationship would end in March 2016 when its current 10-year contract with Costco expires.

Costco ‘shocked’ by one-day sales of $3.5M on Alibaba’s TMall site

Costco will expand more heavily into China after it sold $3.5 million worth of goods over a 24-hour period with the help of Alibaba.

In October, the Seattle-area retail giant announced it was partnering with Alibaba to enter the China market for the first time. In doing so, Costco planned to sell some of its merchandise, including some of the Kirkland brand products, to consumers visiting the Tmall e-commerce platform.

As part of an Alibaba announcement today regarding Tmall Global’s performance, Costco said it sold $3.5 million worth of merchandise on Singles Day, which is China’s equivalent Cyber Monday.

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Costco off to great start with Q1 beat

The holiday season started strong at Costco where U.S. same store sales advanced 7 percent during the company’s first quarter ended Nov. 23.

Total company sales during the period increased 7 percent to nearly $26.3 billion from $24.5 billion. Membership income grew slightly slower, advancing 6 percent to $582 million. Same stores sales excluding the effects of the strengthening U.S. dollar and fuel price deflation were 7 percent and U.S. and international locations.

Profits during the period increased to $496 million, or $1.12 per share, three cents better than analysts’ consensus forecast, compared to $425 million, or 96 cents a share the prior year.

Costco end the quarter with a total of 671 warehouses, including 474 in the United States and Puerto Rico, 88 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain.

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AmEx Costco Card Seen as Crown Jewel

American Express Co. (AXP) risks losing at least 15 cents a share of 2015 profit if it fails to maintain a credit-card partnership that Costco Wholesale Corp. (COST) is said to be reconsidering, according to analysts’ estimates.

The lender’s exclusive role as the credit-card provider for Costco’s U.S. stores may generate 20 cents to 30 cents of earnings per share next year, according to William Ryan at Portales Partners LLC. Morgan Stanley’s Betsy Graseck estimates the portfolio could account for 15 cents to 19 cents. AmEx will earn $6.03 a share next year, according to the average of 27 estimates in a Bloomberg survey.

“The Costco relationship is one of the crown jewels of co-brand relationships,” Jason Arnold at RBC Capital Markets said in a phone interview. “It’s something that would be felt.”


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Costco works with Alibaba to limit risks as it enters China

CHICAGO — By selling directly to Chinese consumers on Alibaba’s platform, a move announced last week by the American retailer Costco Wholesale, it aims to employ local knowledge and a low-cost structure to avoid missteps that caused even Walmart, the world’s largest retailer, to stumble in China.

Many global retailers opening in China have struggled to find product mixes and store designs that appeal to local customers. In addition to Walmart, others like Best Buy and eBay have fallen short of expectations in one of the fastest-growing consumer markets.

Costco’s virtual storefront on the Alibaba site Tmall is designed to help the company study consumer shopping habits with no brick-and-mortar costs and fewer risks, signaling a new approach to expanding in China.

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Rising Membership Propels Costco’s Growth

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Amid an uncertain retail environment, warehouse giant Costco posted strong results with 6% growth in comparable sales and 3% rise in net income. While the company’s revenues topped estimates, its earnings per share fell short by a small margin. Costco’s earnings per share came in at $1.07, while analysts wereexpecting the figure to be around $1.09. Unfavorable foreign currency fluctuations had a negative impact of about $0.03 on the retailer’s EPS and 5 percentage points on its international comparable sales growth.

Excluding the impact of currency fluctuations and gasoline price deflation, Costco’s U.S. same-store sales increased by 6% and international same-store sales increased by 8%. Increasing membership signups, rising membership fees and improving renewal rates boosted Costco’s results, and we expect this trend to continue in the future as well. The retailer recently opened its first store in Spain, where it hasinteresting growth opportunities. Costco’s online sales continued to grow at a robust pace in all its markets, which is a promising sign for the company. Overall, Costco appears to be headed towards a bright future.

Our price estimate for Costco stands at $121, implying a premium of less than 5% to the market price. However, we are in the process of updating our model in light of the recent earnings release.

Growing Membership Is Driving Costco

Over the last few years, Costco has seen a noticeable increase in the number of new members. While the retailer added 2.3 million members in fiscal 2009, more than 4 million customers signed up in fiscal 2011. The retailer’s membership base saw a rise of 3 million in fiscal 2012 and another 4.2 million joined Costco in fiscal 2013. Strong membership growth continued in fiscal 2014 as well, which is evident from strong third quarter data. New membership signups increased by 1% during the quarter with the addition of 1.2 million cards. The business member renewal rate improved to 94.4% in Q3 from 94.3% in Q2 and the Gold star renewal rate moved up to 89.7% from 89.6% in the previous quarter. Overall, renewal rate in the U.S. and Canada reached 90.6% from 90.4% (Q2) and in international markets, it soared from 86.8% in Q2 to 87.3% at the end of Q3.

Executive members play an important role in driving Costco’s sales as they represent one-third of Costco’s overall customers and two-third of its revenues. These members pay $110 as membership fee (as opposed to $55 paid by other members) to get 2% (maximum of $750) annual rewards on their purchases. Interestingly, the proportion of executive members in the overall membership base has been rising historically. During the quarter, over 300,000 new executive members joined Costco with total membership signups at 1.2 million. The proportion of new executive members in total new members was somewhat in line with historic averages.

International Markets Present Several Growth Opportunities

As evident from its robust growth, Costco’s business model appears to be resonating well with international customers. Encouraged by the pleasing customer response, the company has been gradually expanding in key international markets such as the U.K., Mexico and Canada. During the third quarter, Costco opened one store each in Japan and Korea, as well as its first store in Spain. Given the region’s weak economic environment, buyers are likely to welcome a money saving shopping option in the form of Costco. With the right marketing and an optimum emphasis on essentials such as groceries (high demand in Spain), the retailer can acquire a strong customer base. Since Costco has a very small presence in Europe, a successful launch in Spain can facilitate its expansion in a number of markets. Moreover, the company operates just 173 stores in seven countries, out of which 120 are in Canada and Mexico. This presents strong growth opportunities in Japan, Taiwan, Korea, Australia etc.

Online Growth Continues

During the third quarter, Costco’s online business continued to grow at a robust pace backed by its website re-platforming, several new mobile apps, and the launch of new product categories. Following 20% growth during the second quarter of fiscal 2014, the retailer’s e-commerce revenue rose by 15% in Q3 fiscal 2014. We believe that this growth is likely to continue in the future as Costco’s online channel is at a nascent stage and accounts for just 2.5% of its net sales. Furthermore, the company’s e-commerce strategy, increased product categories and better inventory management will assist its online growth. About 80%-90% of products offered on Costco’s website are different from its store inventory. This prevents self-cannibalization between these two channels. Over the last year, Costco has added new product categories such as apparel, health and beauty aid. The retailer has also improved its shipment timings by shipping three depots instead of one. Costco currently operates its e-commerce operations in three international geographies – Canada, the U.K. and Mexico. As the company enters new markets such as Japan, Australia, Korea etc. in the future, its online business will get bigger.

Costco’s Secret Pricing Code

(Reuters) – As superstore pricing mysteries go, it’s not the equivalent of “The Da Vinci Code,” but there’s still something deliciously elusive about the so-called “Costco Code” that has set the tongues of shopping mavens wagging for the past several months.

At least the plot line is direct enough: If you can interpret what the various sequences of digits and asterisks mean on Costco Wholesale Club price signs, you’re on your way to scoring serious bargains.

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Costco implements new international e-commerce site

Costco Selects Reply and hybris to Implement Its New International E-Commerce Site.

CHICAGO, April 2, 2014 (GLOBE NEWSWIRE) — Reply [MTA, STAR: REY], a company specialising in the design and development of enterprise solutions based on new digital media, and hybris software, an SAP company and the world’s fastest-growing commerce platform provider, today announced that they have developed and delivered Costco Wholesale Corporation’s new international e-commerce site,

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