Costco Sales Rise as Tariff Uncertainty Looms
May 30 2019 - 7:25PM
Dow Jones News
By Sarah Nassauer
Costco Wholesale Corp. booked another quarter of sales gains,
boosted by increasing visits to its warehouse clubs as the retail
giant tries to navigate the U.S.-China trade fight.
Comparable sales -- those in stores and through websites in
operation for at least 12 months -- rose 5.6% in the quarter ended
May 12. The gain excludes the effect of gasoline prices and
currency fluctuations.
E-commerce sales rose 20% during the quarter. Costco offers some
items on its website and has teamed with Instacart to offer
same-day grocery deliveries. But it has kept its focus on getting
shoppers to buy in bulk at its cavernous stores.
It is unclear how this month's tariff increase to 25% on around
$200 billion worth on Chinese imports including bicycles, furniture
and luggage will affect store prices or cost of goods, said Costco
Chief Financial Officer Richard Galanti on a call with analysts
Thursday.
Costco has brought in some imports early to reduce tariffs,
reduced costs with some suppliers, cut orders for some goods and is
looking at sourcing outside of China in some cases, he said. Price
increases are being passed on to shoppers on some items.
"At the end of the day, prices will go up," said Mr.
Galanti.
As many retailers struggle to adapt to shifting shopping habits
online, Costco has fared well offering bulk products at lower
prices to fee-paying members. Costco's primary source of profit is
membership fees, allowing it to offer lower prices on goods, often
undercutting competitors. The model tends to attract middle- and
high-income shoppers. In the most recent quarter one shopper bought
a $400,000 diamond ring, said Mr. Galanti.
But it is taking a comparatively cautious approach to online
growth versus other retailers. Walmart Inc. and Target Corp. have
invested heavily to speed online delivery and offer curbside
pickup, but Costco doesn't have plans to offer groceries for online
pickup in stores, said Mr. Galanti.
"We continue to look at it. We continue to scratch our head at
it," he said. The chain is adding lockers to more stores so
shoppers can pick up online orders this year, mostly for small,
high-priced items, he said. "We still want to drive the customer to
the warehouse."
Total revenue, including membership fees, rose to $34.74 billion
in the quarter, up from $32.36 billion for the same period the
previous year. Profits rose to $906 million, up from $750 million
in the year-ago period.
Costco has added to its store base in recent years, particularly
outside the U.S., which carries some risk, as well as some cost
benefits including in health care, said Mr. Galanti. Costco's first
Chinese store will open this summer in Shanghai, he said.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
May 30, 2019 19:10 ET (23:10 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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