Food Sales Rise Sharply in Costco's Q4

Costco said last week food was one of the bright spots during its fiscal fourth quarter, which ended Aug. 31, as comparable-store sales in most nonfood categories were flat or declined in the period. In a conference call discussing the results, Richard Galanti, executive vice president and chief financial officer, said comps for food and sundries ranged from the high single digits

ISSAQUAH, Wash. — Costco said last week food was one of the bright spots during its fiscal fourth quarter, which ended Aug. 31, as comparable-store sales in most nonfood categories were flat or declined in the period.

In a conference call discussing the results, Richard Galanti, executive vice president and chief financial officer, said comps for food and sundries ranged from the high single digits to the mid-teens — despite a drop of 11% in tobacco sales, which are part of the sundries assortment; while fresh foods, including meat, saw increases in the high single digits, and bakery and deli in the mid-double-digit range.

In contrast, comps for bigger-ticket items like furniture, jewelry and electronics, as well as housewares and domestics, were flat or fell by as much as 10% during the quarter, Galanti pointed out.

Food and sundries account for just over 40% of total sales, and fresh foods for another 13%, “and we feel comfortable with that,” he said. “Although it's very competitive out there, nobody is more competitive than we are, and we've shown we can make some improvements in those areas.

“With our depots and cross-dock operations, we can bring in an extra six or eight weeks' worth of product — or whatever the vendor will roll out — at a lower price and keep it as long as we can and still make a little at the tail end.”

Asked how Costco deals with vendors trying to push through price increases, Galanti said the number of increases has slowed for the moment.

“In the last few weeks, the floodgates have closed a little bit,” he said. “Everybody's worried about sales, including the manufacturers, and pricing has come down. The inflationary trends might continue for a while, but as of today, they've subsided a little.”

Asked whether supermarkets that lower prices might force Costco to lower its prices to maintain the same gap, Galanti said, “We're less concerned with what all the others do because, beyond commodity items — where we're all working on low margins — we have a unique ability to offer specialty or upscale items where the others can't compete.”

Net income for the 16-week quarter rose 6.8% to $397.8 million, while sales climbed 12.6% to $22.6 billion. Comps rose 9% in the U.S. and 11% overseas. For the year, net income increased 18.5% to $1.3 billion, with sales up 12.5% to $71 billion.

Q4 RESULTS

Qtr Ended 8/31/08 9/2/07
Sales $22.6B $20.1B
Change +12.6%
Comp-store +9%
Net Income $397.8M $372.4M
Change +6.8%
Inc/Share 90 cents 83 cents
52 Weeks 2008 2007
Sales $71B $63.1B
Change +12.5%
Comp-store +8%
Net Income $1.3B $1.1B
Change +18.5%
Inc/Share $2.89 $2.37