Costco bucks trend with gained market share, square footage in Q2

3/18/2013

While other big retailers have been hurting, Costco saw its membership sales rise 15 per cent to $528 million.

Last Tuesday, Costco reported a five per cent increase in U.S. sales with international growth at six per cent when presenting its second quarter 2013 results.

We continue to enjoy strong renewal rates, said Richard A. Galanti, Costco executive vice-president and CFO in a conference call.

Industry expert Ed Strapagiel noted that while membership fees are only about two per cent of Costco's total revenue, the margin on them is almost 100 per cent–in other words, any increase in membership revenue mostly all flows straight to the bottom line.

Forbes reported that Costco has thrived during the retail slump, even giving its employees a nine per cent wage increase last month making the hourly rage for clerks $22.87, with clerks getting bonuses of $3,750 to $4,000 every six months.

The retailer is going full steam with store openings in 2013. Galanti said the retailer will open between now and the end of fiscal 2013, an additional 14 locations, five in the current fiscal quarter and nine in the fourth quarter (none are in Canada).

We will most likely end the fiscal year with 28 new openings this fiscal year and be operating a total of 636 Costcos worldwide at that time, said Galanti.

In the second quarter, Costco opened five new locations, including two in Canada.

According to the Issaquah, Wash.-based company’s press release, revenues and comparable store sales growth for the quarter were 8 per cent and 5 per cent respectively.

Strapagiel noted that Costco’s revenue result is significantly higher than the industry average. Adding this is even more impressive since Costco did this despite an increase in membership fees. "In fact, they report that total membership income was up 15 per cent," said Strapagiel.

He also said Costco offers a retail concept that particularly appeals to larger households with above average income. "This is just about the most desirable customer to have and direct competition to Costco is limited, particularly in Canada."

“The retailer’s ability to keep members engaged and coming back for more is unparalleled,” Planet Retail analyst Sandy Skrovan said in a Globe and Mail report.

In terms of sales comparisons by geographic region, Canada and Mexico were the strongest internationally, in local currency, said Galanti in the call.

In terms of merchandise categories for the quarter, for the second quarter, within food and sundries, were overall in the mid-single digits. “Frozen foods, candy, and deli were the relative standouts,” said Galanti.

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