Costco shrugs off Amazon worries with June sales surge

Dive Brief:

Costco Wholesale Corporation on Wednesday reported June sales results that shattered analyst expectations: net sales rose 7% to $12.17 billion during the five weeks ended July 2, from $11.33 billion in the similar period last year, according to a company press release.
Overall same-store sales last month came in at 6%. In the U.S., excluding gas and currency fluctuations, core same-store sales rose 6.3%, and 6.5% at the company overall, according to the company statement, blowing past the Retail Metrics consensus expectation for a total company same-store sales rise of 3.7% and a core U.S. rise of 3.9%.
Costco shares had retreated on the news that Amazon will buy Whole Foods for $13.7 billion as investors worried about the inevitable disruption in grocery sales and operations but bounced back after its June sales report.

Dive Insight:

It’s difficult to be hyperbolic when it comes to analysis of Amazon’s brick-and-mortar play via its proposed Whole Foods acquisition. Whole Foods, despite recent struggles, remains the leader in sales of natural and organic foods, with some 460 stores in 43 states. Meanwhile, Amazon has been trying to break into the grocery category in a meaningful way for nearly a decade.

The impact of the deal on supermarkets and traditional food retailers is likely to be major. Whole Foods had $15.7 billion in sales for fiscal year 2017 and while Amazon doesn’t break out sales, BMO Capital Markets estimates it may already sell $6 billion in natural, organic and specialty foods per year. That puts Amazon and Whole Foods at close to $22 billion in annual combined food sales — and that's before online grocery catches on.

“The retail sector is used to change, but every so often an event occurs that shakes the industry to its core,” GlobalData Retail Managing Director Neil Saunders said in an email to Retail Dive. “Amazon's acquisition of Whole Foods is one of those. … For other grocers, the deal is potentially terrifying.”

But Costco, say analysts, is different. Even before the membership-based warehouse retailer announced its June results, and while other Wall Street firms lowered their outlook, Raymond James Financial raised its Costco rating to “outperform” from “market perform,” saying that its business won’t be "materially impacted" by Amazon's plans and that its sales growth will remain solid, according to a report on that note from CNBC.

Just a couple of weeks later, Costco has demonstrated its strengths, and its June results “should serve as a reminder that not all retailers are created equally,” wrote Gordon Haskett analyst Chuck Grom in a note emailed to Retail Dive. "Importantly, traffic trends were very healthy during June.”

What makes Costco different is strong key customer loyalty that keeps shoppers coming back to stores. They come for the gas and the cheap groceries (Costco’s infamously low-priced rotisserie chickens are a hit with millennials) and stay for the treasure-hunt. “The Issaquah, Washington-based chain is one of an elite group of retailers that routinely generates positive foot traffic into stores,” Retail Metrics president Ken Perkins wrote in an email to Retail Dive. “Costco experienced an impressive 4% traffic gain worldwide with U.S. foot traffic growing by an even stronger 4.5%.”