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Costco's Solid Sales Fueled By Grocery Demand

Club operator reports higher net sales, comps and revenue
Lynn Petrak, Progressive Grocer
Packaged and fresh food sales helped fuel solid sales at Costco during the recent fourth quarter.

Costco Wholesale capped its fourth quarter and fiscal year with a respectable performance during a tepid-at-best economy. The club store operator reported a 9.4% increase in net sales for the 17-week quarter ending Sept. 3, topping $77.43 billion, and 6.7% bump in fiscal year sales compared to 2022, reaching $237.71 billion. In the U.S., sales comps rose 3.1% on an adjusted basis for the quarter and 4.2% for the year.

Total revenue for the fourth quarter hit $78.9 billion, while quarterly net income came in at $2.16 billion compared to $1.878 billion during Q4 of 2022. For the year, Costco reported a net income of $6.292 billion, up from $5.915 billion last year.

In the earnings webcast, CFO Richard Galanti said that part of the growth came from grocery staples, as shoppers pulled back on big-ticket items like furniture and electronics. “Overall, food and sundries were relatively strong once again, with fresh foods right behind,” he remarked.

Costco also saw an influx of shoppers. Traffic increased 5% in the U.S. during the most recent period and Galanti reported that membership growth was fueled by new store openings and more executive memberships.

When asked about the timing for a hike in membership fees, Galanti demurred. “My pat answer is that it’s a question of when, not if. It’s a little longer this time around, since it’s been since June of '17, but we can’t tell you if it’s in our plans – stay tuned,” he said, adding, “We feel good about our attributes of member loyalty and growth.”

[Read more: “Costco Offering Members Discount Pricing for Outpatient Medical Care”]

To his point, more consumers are joining as Costco’s expands its footprint. The operator opened nine new net warehouses globally in the recently concluded quarter, with five locations in the United States, and is planning on unveiling another nine clubs in the first quarter of fiscal 2024.

Galanti was also queried about macro trends in the retail sector, such as inflation, labor and shrink. He said that inventory shrink has risen only slightly, “so, no, thankfully, it’s not a big issue for us.” The CFO reported that inflation during the last quarter trended down to the 1-2% range, but shared that it’s tough to predict the future pricing environment. As for labor, he emphasized that Costco’s wage package is among the highest in the industry, with an average hourly wage of $26.

On the digital front, e-commerce sales deflated a bit, down 0.6% for the quarter. “While still negative, e-comm showed good improvement this quarter,” Galanti shared. Also in that area, Costco has continued to make improvements on its mobile app and is adding suppliers to the Costco Next platform that allows members to buy direct from select brands at a Costco price.

Phillip Blee, an analyst with investment banking firm William Blair, said that Costco’s performance reflects its core strengths as a retailer. "We remain encouraged by the  company’s healthy traffic gains and stability across its membership base, which should continue to insulate the model against softer demand in higher ticket, discretionary categories,” Blee said. “We  believe Costco’s leading value proposition centered around low prices, high-quality products, and its private label brand, should fuel ongoing momentum in traffic as inflation-battered consumers continue to seek opportunities for savings.”

Issaquah, Wash.-based Costco currently operates more than 850 warehouses, including 590 in the United States and Puerto Rico and 107 in Canada. The company is No. 3 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America. PG has also named Costco one of its Retailers of the Century.

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