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Costco sales climb more than 20% in third quarter

Warehouse club giant begins reopening sampling stations, food courts

Russell Redman

May 28, 2021

6 Min Read
Costco_store_exterior copy_0.png
Costco's U.S. comparable sales climbed 15.2% excluding fuel and foreign exchange for the 2021 third quarter.Costco Wholesale

Costco Wholesale saw net and comparable sales jump over 20% for its fiscal 2021 third quarter, with margin growth in general merchandise, big-ticket items and nonfood categories more than offsetting flat results in food and sundries.

And in another sign of reopening from the COVID-19 pandemic, Costco said it has begun a restart of in-club product sampling and food courts, which a year ago had been shut down following the outbreak of the virus.

For the 12 weeks ended May 9, net sales totaled $44.38 billion, up 21.7% from $36.45 billion a year earlier, Costco reported yesterday after the market close. Overall comp sales climbed 20.6% ( 15.1% excluding fuel and foreign exchange), reflecting gains of 18.2% in the United States ( 15.2% excluding fuel and FX), 32.3% in Canada ( 16.7% excluding fuel and FX) and 22.9% internationally ( 13.1% excluding fuel and FX). 

“In terms of Q3 comp-sales metrics, traffic or shopping frequency increased 12.5% worldwide and plus 11.9% in the U.S. Our average transaction, or ticket, was up 7.3% worldwide and up 5.7% in the U.S. during the third quarter. And these numbers include the positive impact both of gas inflation and FX,” Costco Chief Financial Officer Richard Galanti told analysts in a conference call late Thursday. Gasoline price inflation impacted comp-sales results by 260 basis points and FX rates by 290 basis points.

Related:Costco sees April sales climb more than 30%

Richard_Galanti-Costco_CFO-headshot_1.jpg"Fresh [food] is lapping exceptional labor productivity and low product spoilage that occurred from the outside sales that began a year ago in Q3 with the onset of COVID-19.” — Richard Galanti, Costco CFO (Photo courtesy of Costco)

E-commerce sales in the third quarter surged by 41.2% ( 38.2% excluding FX) on a comparable basis, according to Costco. Galanti said a test of pickup service at three clubs in Albuquerque, N.M., is ongoing.

In a research note late yesterday, Jefferies analyst Stephanie Wissink said Costco’s efforts to promote online shopping are bearing fruit.

“Costco is doing more in-warehouse to drive online traffic, as well as working on improvements to its mobile platform,” Wissink wrote. “Management noted e-commerce strategy and same-day through third-party [Instacart] appears to be helping grow share with younger demographics. Constructively, members who have used e-commerce renew at a higher rate, with 45% trying the service so far.”

Costco’s membership fee revenue in the third quarter rose 10.6% year over year to $901 million, just over 2% of sales. The worldwide renewal rate was nearly flat at 88.4%, including 91% in the U.S. and Canada. On a quarterly sequential basis, total membership edged up 1.5% to 60.6 million paid households.

Related:Costco under way with limited test of grocery curbside pickup

Third-quarter gross margin in core merchandise fell by 52 basis points from a year ago and by 29 basis points excluding fuel, reflecting the shift from core to ancillary sales in the wake of last year’s service department closings, according to Galanti.

“Recall that last year, we saw a significant shift of sales out of ancillary and other businesses and into the core. In terms of the core margin on their own sales, in third quarter, the core-on-core margin was better by plus-27 basis points, with nonfoods up significantly, rebounding from last year’s lows. Food and sundries were flat year over year and fresh foods down from last year, the latter still strong by historical standards. Fresh, as we’ve mentioned over the last few quarters, is lapping exceptional labor productivity and low product spoilage that occurred from the outside sales that began a year ago in Q3 with the onset of COVID-19,” he explained. 

“Ancillary and other business gross margins, again ex-gas inflation, were up seven basis points year over year in the quarter. We have a lot going on here, as last year we had closed the hearing aid and optical departments and had severely limited the service and selection at our food courts for most of Q3 last year,” Galanti said. “Gas had a particularly good quarter a year ago, which had helped offset some of those closures a year ago. This year, we’re showing margin improvement in optical, food court, e-comm and hearing aids, somewhat offset by gas.”

At the bottom line, third-quarter net income came in at $1.22 billion, or $2.75 per diluted share, compared with $838 million, or $1.89 per diluted share, a year ago. Costco noted that the 2021 and 2020 quarters, respectively, included COVID-related pretax costs of $57 million (9 cents per diluted share)— mainly a $2 hourly premium pay hike — and $283 million (47 cents per diluted share).

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U.S. customer traffic rose almost 12% in the third quarter, with the average ticked size up nearly 6%.

Analysts, on average, had forecast adjusted earnings per share of $2.34, with estimates ranging from $1.88 to $2.96, according to Refinitiv.

“As you all know, we eliminated our popular food sampling and demo activities in our warehouses last March at the onset of the pandemic,” Galanti said in the call. “As various states opened and closed last summer and fall, we tried a few sampling events, a few single-serve items like cookies and crackers, takeout only, no cooked or prepared sample items, and a few enhanced talking demos such as items for display only. I'm happy to report that over the next couple of weeks, we’re beginning a phased return to full sampling.”

Plans call for about 170 of Costco’s nearly 560 U.S. clubs to relaunch sampling by the first week of June, with most of the remaining locations following at the month’s end. Food courts also will be reopening over the next few weeks, and in “a bigger way,” Galanti noted.

“As the pandemic took hold, we pared back the menu basically to hot dogs and pizza and soda and smoothies, and we eliminated all seating. It was takeout only. We began several weeks ago adding back tables and seating at a handful of outdoor food courts in a few states,” he explained. “Over the past few months, we’ve also added back a few more food items, including bringing back a new and improved churro, which will be at all U.S. locations by the July 4, and adding a high-end soft ice cream to replace our frozen yogurt. And by June 7, we plan to have tables and seating back at most locations, but with more physical separation — tables of four instead of six and eight, and about half the seating capacity as we had before.”

In the third quarter, Costco opened six new clubs, including one in the U.S., three in Canada and two internationally. The Issaquah, Wash.-based warehouse club chain plans open seven more — five in the U.S. and two internationally — in the fourth quarter.

“That would put us at a total of 21 net new warehouses for the fiscal year,” said Galanti. “In addition, we are looking to open about 25 net new units in each of the next two fiscal years, including a second warehouse in China in fiscal 2022, which would be towards the end of calendar 2021, and a third expected to open in late calendar 2022, which would be early fiscal year 2023.”

Overall, Costco now operates 809 warehouses, including 559 in the U.S. and Puerto Rico, 105 in Canada, 39 in Mexico, 29 in the United Kingdom, 29 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France and China. The company also operates e-commerce websites in the U.S., Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

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About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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