Pandemic Boom Still Booming at Costco

Food retailer reports spectacular Q3 comps, profit
Gina Acosta, Progressive Grocer
a group of people standing in front of a building
Costco reported that membership fees increased 11% year over year to $901 million.

Other food retailers may be lapping the impacts of pandemic sales gains from last year into negative comps, but Costco Wholesale is seeing no such slowdown.

The retailer reported third quarter earnings late on May 27 that continue to not just impress but astonish. Even as the grocery boom levels off at most other food retailers, Costco's momentum is going in the opposite direction: that is, up.

For the third quarter ended May 9, Costco said net sales increased 21.7% to $44.38 billion, from $36.45 billion last year. Same-store sales, excluding the impacts of fuel and currency fluctuations, shot up 15.2% in the U.S., more than the retailer's comp of 12.6% in the previous quarter. E-commerce was also up, 38.2%, although digital sales were down from the 80.3% increase in Q2.

Net income for the third quarter was $1,220 million, or $2.75 per diluted share, which included $57 million pretax, or 9 cents per diluted share, in COVID-19 related costs, primarily from $2 per hour premium pay. Last year’s third quarter net income was $838 million, or $1.89 per diluted share, inclusive of $283 million pretax, or 47 cents per diluted share of COVID related costs. 

Membership fees increased 11% year over year to $901 million.

In an earnings call Thursday, CFO Richard Galanti said the retailer would be bringing back full sampling and demos to stores. The company suspended its popular food sampling and demo activities in warehouses last March at the onset of the pandemic. 

"I'm happy to report that over the next couple of weeks, we're beginning a phased return to full sampling," Galanti said. "This will come in waves. The first wave of locations, about 170 of our 550-ish locations in the U.S. will be activated by the first week of June, with most of the remaining locations returning towards the near -- or towards the end of June. The first wave will actually determine how fast we roll out and what and when restrictions are lifted."

Galanti said increased safety protocols will be in place, including all samples prepared behind plexiglass, prepared in smaller batches for better safety control, and distributed to members one at a time.

Costco's food courts are also coming back over the next few weeks in a bigger way. In March 2020, the retailer pared back the menu basically to hot dogs, pizza, soda and smoothies, and all seating was eliminated. Several weeks ago Costco began adding back tables and seating and -- at a handful of outdoor food courts in a few states.

"Over the past few months, we've also added back a few more food items, including bringing back a new and improved churros, which will be at all U.S. locations by the 4th of July, and adding a high-end soft ice cream to replace our frozen yogurt," Galanti said. "And by June 7, we plan to have tables in seating back at most locations, but with more physical separation, tables of 4 instead of 6 and 8 and about half the seating capacity as we had before. Again, these are still subject to doing this in waves and see how it goes and subject to any additional state rules or restrictions in a few cases."

Issaquah, Wash.-based Costco operates 809 warehouses worldwide. The company, which is No. 4 on Progressive Grocer’s 2021 PG 100 list of the top food and consumables retailers in North America, also has e-commerce sites in the United States, Canada, the United Kingdom, Mexico, Korea and Taiwan.

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