Costco sales rise as competition from Amazon, Lidl looms

Dive Brief:

Costco on Thursday reported that third quarter fiscal 2017 net sales rose 8% year over year to $28.22 billion, while net sales for the first 36 weeks year-to-date rose 6% from the same period last year to $84.82 billion, according to a company press release.
Same-store sales in the quarter, excluding gas and foreign currency fluctuations, rose 5% overall and 5% in the U.S., 3% in Canada and 6% elsewhere internationally. For the first 36 weeks of the year, same-store sales rose 3% overall. E-commerce sales rose 11% in the quarter, while revenue from membership fees rose to $644 million from $ 618 million last year.
Q3 net income was $700 million, or $1.59 per diluted share, compared to $545 million, or $1.24 per diluted share. That topped FactSet analyst expectations cited by The Street for $1.31 per share. Year to date, net income rose to $1.76 billion, or $3.99 per diluted share, compared to $1.57 billion, or $3.56 per diluted share, last year.

Dive Insight:

Amazon is challenging warehouse clubs, but doesn’t seem to be denting Costco’s numbers much, as the warehouse retailer continues to focus on its brick-and-mortar operations.

The percentage of U.S. households that pay for Amazon Prime but hold no other club membership has grown from 7.1% in 2013 to 16.2% in 2016, while the percentage belonging to just Costco fell to 9.8% from 14.9%, and households belonging to Sam’s Club fell to 9.7% from 16.9%, according to research from Cowen and Co. released last year.

Costco is comfortable with its "offensive" e-commerce strategy, CFO Richard Galanti told analysts Thursday, according to a transcript from Seeking Alpha, adding that the retailer isn’t “really worried about what others are doing.”

“[N]ot to be arrogant or cavalier about it, but we feel good about what we are doing, we have got great brick-and-mortar comps, we are doing things offensively in our view, not defensively, and we have got a lot of things going on the online side,” Galanti said.

While partnering with Instacart, Google Express and other third-parties for online orders, the retailer keeps its focus mostly on driving members into stores and enhancing its “treasure hunt” atmosphere, he said. He acknowledged that competition from Amazon and other players, including newcomer no-frills grocery-and-sundries retailer Lidl, will indeed present a challenge. But, he said, other retailers are likely to lose more market share than Costco.

“[I]t’s traditional food retail that is getting hit more than us,” he said. “We have to keep driving our members into our warehouse and we do that with of course great prices and great items, certainly fresh foods, certainly gas stations… which brings them into parking lot, if you will, and certainly the loyalty program … all those have helped us, and then the treasure hunt,” he said. “[W]e are asked a lot about [Lidl] coming into the East Coast, they are going to take share, but they are going to take share from everybody else a lot more than they can take share from us. So we haven’t really seen a big change like people buying less at Costco because of other formats out there.”