Costco reports strong Q3, driven by Own Brands and gas demand
Costco continues to launch new products under its Kirkland Signature own brand, as the largest club retailer in the U.S. cut prices on select products and launched new items to meet current consumer needs during its fiscal third quarter.
During an investor conference call to discuss third-quarter results, Gary Millerchip, the company's chief financial officer, highlighted new Kirkland Signature products, including energy drinks, sea salt popcorn, oven-roasted chicken dog food, and ultra-filtered milk that hit stores during the quarter. The launch of the milk created a buzz on social media, with some comparing the product to the Coca-Cola-owned Fairlife.
Priced at $13.61 for a three-pack of 64-ounce containers, the reduced-fat milk has vitamins A and D added, 13 grams of protein per serving, and 50% less sugar than regular milk. By comparison, a 52-ounce container of Fairlife reduced-fat milk at Walmart is priced at $5.32.
Costco CEO Ron Vachris said the new milk has “taken off extremely, extremely strong.”
Additionally, Costco cut prices on several Kirkland Signature products, including crispy wings from $16.99 to $14.99, milk chocolate almonds from $19.99 to $18.99, golf balls from $32.99 to $29.99, and king-size sheets from $89.99 to $79.99.
"Kirkland Signature is driving growth in food and sundries,” Milerchip said. “We continue to innovate with new (Kirkland Signature) items, offering savings of at least 15% to 20% to the national brand equivalent with equal or better quality.”
Continued growth of its Kirkland Signature own brand was a key factor in the retailer’s strong fiscal third quarter. For the 12 weeks ended May 10, company-wide net sales increased 11.6% to $69.15 billion. Net income in the quarter was $2.2 billion, or $4.93 per diluted share, up from net income of $1.9 billion, or $4.28 per diluted share, in the comparable quarter the previous year.
By segment, comparable store sales excluding the impact of gasoline prices and foreign exchange were up 6.8% in the United States, up 6.2% in Canada, up 5.9% in Other International, and 20.8% digitally enabled.
Vachris said the three four-week fiscal periods in the third quarter set successive all-time company volume sales records, with the final five weeks of the quarter becoming Costco’s top-five volume weeks in company history.
“Our gas team performed exceptionally well to manage this unprecedented demand, which requires multiple daily gas deliveries to many locations,” he said. “The high consumer price sensitivity, which fueled record volumes, also drove many members to use our gas stations for the very first time in the third quarter. We believe this will drive even greater loyalty with these members in the future, as members who use our gas stations typically spend more with us in the warehouse.”
By product category, Millerchip reported that fresh comparable sales were up in the high single digits, led by meat and bakery. In meat, Costco saw strength in premium cuts of beef and lower-cost proteins such as ground beef and poultry. Bakery continues to see success with the launch of new items, including a variety of seasonal pastries and cookies.
Nonfoods comparable sales were up in the high single digits, driven by gold and jewelry, small electrics, tires, home furnishings, major appliances, and health and beauty. Self-care and wellness items performed “extremely well” during the quarter.
Additionally, growing consumer use of GLP-1 medications is having a positive impact on Costco sales. While driving business in the pharmacy, shoppers are also seeking out products such as protein snacks, protein bars, and beef sticks. Millerchip pointed to Costco’s launch of its Kirkland Signature Beef Sticks, which are doing “tremendous volume.”
On the real estate front, Costco continues to target more than 30 net new openings per year in the coming years. During the third quarter, the retailer opened three new U.S. stores and a Canadian business center. The company is now projecting 26 net new openings in the current fiscal year, down two stores from previous predictions. Those two locations will open in fiscal year 2027.
This article was originally published on Canadian Grocer's sister site, Store Brands.
