Costco may have posted better-than-expected profit and revenue for its fourth quarter, but it didn’t keep shares from dropping 3.4% to $161.41.
The wholesaler saw numbers go up virtually across the board. Net sales for the quarter ended Sept. 3 climbed 15.8% to $41.36 billion from $35.73 billion in year-ago period. Helping fuel that boost was an extra week in this year’s quarter compared with last year’s, which had a total of 16 weeks. Comp-store sales rose 6.1% — determined by a 6.5% increase in the United States, and a 4.9% increase in Canada. International comp-store sales increased as well, by 5.6%.
E-commerce sales soared by 21%, suggesting that Costco’s efforts to improve its online business seem to be paying off. So far, the wholesaler has worked to improve search, streamlined the checkout process, improved its members’ ability to track their orders and automated much of the returns processes. The wholesaler has also added high end and well-known brand names, such as Marmot, Spyder, ExOfficio, GE Appliances and Jiffy Lube Services. It has also expanded its Kirkland Signature offerings.
Even membership fees went up 13% to $943 million.
Why the drop in shares?
Two factors prompted the drop in shares. Costco’s shrinking gross margins “fueled concerns of an intensifying grocer price war,” according to CNBC. And fueling that price war is, of course, Amazon, whose acquisition of Whole Foods has caused major disruption in grocery retail. But CFO Richard Galanti struck a positive note, noting that the company is confident its value is greater than the competition’s. While Galanti conceded that “nobody can predict everything,” he added that Costco’s brick-and-mortar is as strong as it’s ever been and trending in the right direction.
The mission continues being to drive traffic to its stores. Costco will accomplish this with competitive prices; exclusive items, including its Kirkland Signature brand; its strongly performing apparel category, email campaigns promoting special offers; and its newly introduced delivery options. Costco’s new two-day delivery service CostcoGrocer for customers across the contiguous United States has a fee of $3, which is waived for orders greater than $75. Customers can have nonperishable foods and sundries, from 500 available items, delivered to their homes. The wholesaler has also expanded its same-day delivery partnership with Instacart. The program includes dry and fresh foods and is available at 375 Costco locations.