Grocery categories help lift Costco’s Q1 sales

As many members flock to its clubs in the run-up to the holidays, Costco Wholesale Corp. is unwrapping some of its own good news, revealing a solid first quarter performance.  

The company posted a 7.5% increase in net sales, hitting $60.99 billion for the 12-week period ending Nov. 24 and boosted same-store sales by 7.1%. Traffic was up 4.9% in the United States, while earnings per share (EPS) came in at $4.04 versus the expected $3.79.

The lifts came during a quarter when Costco raised its membership fee for the first time in seven years. Membership fee income was also up 7.8% during Q1, but those numbers may not reflect the increase quite yet, per Costco’s leaders. “Remember that the recent membership fee increase doesn't have much impact yet due to the effects of deferred accounting and represented less than 1% of the fee growth in the quarter,” noted EVP and CFO Gary Millerchip during the Dec. 12 earnings call.

Millerchip also put the higher fees into context in the overall price-value equation for Costco shoppers. “I think we tend to look at it holistically and say, how do we make sure that when we think about what our members are paying for their membership fee each year, that we're delivering more value and showing them that they're getting greater value than they're paying by a meaningful margin for the value of being a member,” he explained.

On the point of value, members are balancing cost and enjoyable experiences, the quarterly results demonstrated. “I think in terms of overall what we're seeing with the member on food and grocery, I would say that we are seeing what we think is a little bit of a shift from food away from home to food at home, and that's certainly reflected in strong meat and produce sales that we've seen in our own business,” reported Millerchip. “And we are seeing, I think, a little bit even more of a trend that we've talked about in prior quarters of bifurcation with the member where we have high-quality premium cuts they're selling well. But we're also seeing a gravitation toward those lower price-per-pound items across categories like poultry, cuts of beef.”