One aspect that might help with this area is personalization, of which the company is still in the early innings, noted Richard Galanti, Costco’s director, EVP and CFO, during the company’s Q3 earnings call. Progress has been made in terms of hiring a new VP of digital transformation. “We've really, over the last six to nine months, began a two-year roadmap to improve and re-platform our primary e-commerce website, and the same goes for our mobile apps and mobile site,” he added.
Galanti mentioned that the company is currently building and dramatically increasing its number of engineering capabilities. “Just in the last three months, as an example, we've had three small releases to our mobile app that are improvements of it,” he pointed out, “and we're now on plans to have small improvements in that app each month for the several months going forward.”
Overall, Galanti believes that Costco has a good game plan for personalization.
Meanwhile, net sales for Costco’s Q3 increased 1.9% to $52.60 billion, from $51.61 billion last year. Comparable sales for the quarter in the United States dipped slightly by 0.1%, while excluding gas deflation and foreign exchange (FX), it rose 1.8%.
Reported net income for the quarter was $1.30 billion, or $2.93 per diluted share, compared with $1.35 billion, or $3.04 per diluted share, a year ago in the year-ago quarter.
While traffic or shopping frequency remains in good shape at the company, increasing 4.8% worldwide and 3.5% in the United States, Galanti said, “Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., impacted, in large part, from weakness in bigger-ticket nonfood discretionary items.”
One shining area for Costco has been its ability to keep its shrink intact. “We haven't seen any major change in shrinkage. It fluctuated a couple, three basis points up, really, before COVID as we rolled out self-checkout,” said Galanti. "Since then, it's come back down a little bit. So, it's been a very tight range. We've been fortunate in that regard.”
In terms of membership fee income, Costco reported $1.044 billion of membership fee income, or 1.98% of sales, compared with $984 million, or 1.91% of sales, a year ago in Q3, so a $60 million or 6.1% increase in membership fees. Excluding the headwinds in FX, the $60 million increase would have been higher by $17 million or up year over year by 8%, adjusted for FX. In terms of renewal rates, at Q3's end, Costco's U.S. and Canada renewal rate was 92.6%, while the worldwide rate came in at 90.5%.
“These figures are the same all-time-high renewal rates that were achieved in the second quarter just 12 weeks ago,” said Galanti. “Membership growth continues. We ended Q3 with 69.1 million paid household members and 124.7 million cardholders, both up approximately 7% versus a year ago.” Executive members now represent a little more than 45% of Costco’s paid members and approximately 73% of worldwide sales.
Although Galanti made mention of raising membership fees “at some point,” the company has no immediate plans to do so.