COST Costco Wholesale Corporation

Wholesale club works to keep peanut butter, toilet paper, water and other staples in stock

By Sarah Nassauer and Kimberly Chin 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 6, 2020).

Sales at Costco Wholesale Corp. stores rose and some items were in short supply as shoppers stocked up on bulk quantities of everyday goods amid the new coronavirus outbreak.

The warehouse club operator reported Thursday a 12.1% jump in comparable sales in the month of February, noting an increase in demand in the final week of the month as concerns about the virus mounted in the U.S.

It could have been even higher. But the retailer has struggled to keep peanut butter, toilet paper, bottled water and other staples in stock in some markets. Long lines have been common around the country and the hashtag #CostcoPanicBuying has circulated on Twitter in recent days.

"We're getting deliveries daily, but still not enough given the increased levels of demand on certain key items," Chief Financial Officer Richard Galanti said on an earnings call Thursday. "It's been a little crazy this past week in terms of outside shopping frequency and sales levels and not only in the United States."

On Wednesday, Michael LaPayower headed to Costco to buy baby wipes for his 22-month-old daughter.

"They were completely sold out. They usually have two brands," said the 39-year-old software analyst who lives in Staten Island, N.Y. The store had limited bottled-water purchases to five cases per customer. Many employees wore latex gloves, he said.

"I just couldn't believe it," he said. "I have been to Costco before snow storms and they are fully stocked." Instead of baby wipes, he picked up diapers, toilet paper, water and granola bars.

Mr. Galanti said Costco was placing purchase limits on certain items depending on supply, but the number of people visiting its warehouse clubs has surged in recent days.

"We had a huge pickup in traffic" starting last week and continuing this week, he said. "Are some of them putting it in their basements for another day? Some of it related to the fact that people aren't eating out as much? I think it's a combination of those factors."

He said the company and others have been unable to keep certain items, such as sanitizing items, in stock. "Whatever limited amounts we get is gone pretty quickly," he said. "I would assume that over the next few weeks or several weeks that will abate. But it depends what else happens with the virus itself."

Target Corp., Amazon.com Inc. and other retailers have said demand for many items is high and some are limiting purchase quantities for certain items or penalizing online sellers for price gouging.

For the quarter ended Feb. 16, Costco reported comparable sales. Those from stores or digital operations open for at least 12 months rose 8.9% during the quarter and 7.9% when excluding the impact of gasoline prices and currency fluctuations.

Net income was $931 million, up from $889 million a year ago. Total revenue rose 11% to $39.07 billion in the quarter and the retailer's e-commerce sales increased 28.4%.

Costco also reported strong sales over the holiday buying season when other retailers, including Target, Macy's Inc. and Walmart Inc., faltered, citing weak sales of some categories such as toys and electronics.

Managing through the demand surge is challenging for retailers. Large companies that sell consumer staples and attract more middle- and high-income shoppers are better placed to gain from the increase in demand, said some analysts. Wealthier shoppers can spend more to stock up.

Mr. Galanti said supply-chain issues in China are improving as more factories ramp up production and transportation bottlenecks ease. "There were not only product issues but also trucking and port issues. These are also abating with port capacity in China improving each day," he said.

The February sales increase fueled by coronavirus concerns boosted total and comparable sales by about 3 percentage points, Mr. Galanti said.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Kimberly Chin at kimberly.chin@wsj.com

(END) Dow Jones Newswires

March 06, 2020 02:47 ET (07:47 GMT)

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