At Costco, the Good Times are Rolling
Costco (COST) continues to rumble through retail like an overloaded cart.
Consumers are visiting more frequently and spending more, too, CFO Richard Galanti said in a conference call (transcribed by SeekingAlpha). Even successful retailers have been hard pressed to produce growth in both those metrics recently.
The gain in frequency is especially telling. Galanti noted that the five percent comp gain in the second quarter (November through January) occurred during winter weather that seemed almost designed to keep people indoors--snow in the Midwest and East, rain in California.
Costco's comparable store sales numbers, as quoted above include gasoline, which has been moving up in price, but even without fuel the company posted comps up three percent, so it wasn't all gas. Keep in mind that gasoline sales are important for warehouse club operators. Consumers don't shop warehouse clubs weekly the way they do supermarkets, so whatever draws them into clubs more often is a chance to sell them a few extra items besides the staples and planned purchases. One consequence is shoppers don't visit the supermarket for paper towels, or, in another example, the discount store for socks. In that way, they aren't tempted by the bulk products that those retailers are trying to sell as a counter to warehouse clubs. In fact, warehouse clubs have been performing well enough in the weak economy that Target (TGT) put on a special post-holiday event, The Great Save, in an effort to counter their success.
Fuel sales provide warehouse clubs with other advantages. Because warehouse clubs keep the prices down relative to traditional gas stations, fuel operations become a form of member reward. They also generate more weekday visits, when the sales floors are less crowded, the checkout lines are shorter and consumer presence means a little less crowding â€" and member irritation â€" on the weekends.
So, fuel sales, often disregarded in discussions about comps, are of some interest when the subject is warehouse clubs. As Costco is enjoying bigger transactions with increasing frequency, consumers stopping by for gas appear to be doing some serious shopping.
On the down side, Costco's reported 25 percent gain, to $299 million, did not meet everyone's expectations (though sales did). But then, the retailer has never never run its business for the analysts. An important part of looking at Costco is determining whether the business is making consistent advances, and in this regard, things seem to be going its way. Heck, the retailer even saw better sales in sporting goods and home products, discretionary categories that have wobbles over the last two years.
On its own terms, this retail tank is on a roll.