Retail

Costco saw sales bounce from pandemic, but stay-at-home orders limited bigger gains

Key Points
  • Costco saw a surge in shopping in the early weeks of the pandemic, as customers flocked its stores to buy essentials in bulk.
  • The big-box retailer said it saw a drop off in April because of stay-at-home orders and social distancing.
  • The company is requiring customers to wear masks at its stores and it's temporarily closed some departments, such as optical and hearing aid centers.
Shoppers walk out with full carts from a Costco store in Washington, D.C., on May 5, 2020.
Nicholas Kamm | AFP | Getty Images

Costco said Thursday that its sales grew in the fiscal third quarter, as it benefited from customers buying huge packs of toilet paper, cases of bottled water and bulk grocery items during the coronavirus pandemic — but that growth was constrained by stay-at-home orders.

Here's what Costco reported for the fiscal third quarter ended May 10:

  • Earnings per share: $1.89
  • Revenue: $37.27 billion
  • Same-store sales: up 4.8%

Shoppers flocked to Costco's stores in March to buy essentials, such as large cleaning supplies and groceries. Its same-store sales grew by 9.6% for the five-week period that ended April 5 compared to the year prior. 

That surge dropped off in April, however, as many people hunkered down. The membership warehouse club said in a news release that sales were hurt by "stay-at-home orders, social distancing requirements and some mandatory closures." Its same-store sales fell by 4.7% globally for the four weeks that ended May 3.

Same-store sales grew by 4.8% for the quarter, less than the 5.6% increase that analysts predicted. 

Although sales grew, Costco's costs were higher due to the Covid-19 crisis. Net income fell to $838 million, or $1.89 per share, from $906 million, or $2.05 per share, a year ago. The retailer said additional wages and sanitation costs related to the pandemic reduced earnings by $283 million, or 47 cents per diluted share, on a pretax basis. 

Other factors cut into Costco's profits, too. During the pandemic, customers tended to buy more food and fewer discretionary items, such as luggage or jewelry. Its e-commerce sales jumped by 64.5% for the quarter, compared with the same period a year prior, growth that often comes with additional supply chain expenses.

Analysts had expected the company to earn $1.95 per share, according to Refinitiv. But due to the coronavirus pandemic, it may be difficult for analysts to predict a company's performance. 

Total revenue rose to $37.27 billion from $34.74 billion a year earlier. Wall Street expected revenue of $37.13 billion. 

Costco has nearly 800 stores in the world, including 547 in the U.S. Like at other grocers, shoppers made fewer trips to stores, but put more in their carts when they came, Chief Financial Officer Richard Galanti said in an earnings call. He said shopping frequency dropped in the quarter worldwide by 4.1%, and in the U.S. by 2%. Average ticket went up by 9.3% during the quarter. 

He said the company has "been fortunate that we've been open" and said it has a layout that makes people feel safer.

"When you talk to people anecdotally, they feel frankly more comfortable coming into a Costco which is bigger, more wide open, with certainly the six feet apart that we're all doing," he said. 

During the pandemic, the retailer added safety precautions to limit the spread of the coronavirus. It restricted the number of shoppers in stores and closed or limited service in certain departments like optical and hearing aids. It also prohibited seating at its food courts.

Galanti said those temporary closures reduced its sales numbers for the quarter by an estimated 1% to 2%.

Earlier this month, Costco began requiring all customers to require a mask or face covering — a policy that caused some backlash. Galanti said it's just another way to put customers at ease.

"There are people who don't like it, but most people do," he said.

Food purchases have been way up as people cook at home, Galanti said. He added that he doesn't expect that to change soon, as people have been slow to return to restaurants. 

"The new normal is still going to take some time," he said. "You see on the news that even in states where it's been open, there's not everybody running to sit down, and then there's restrictions on how many people can be in a certain place at a given time."

Customers' heavy shopping has cleared shelves of some items that the retailer is still struggling to restock, including hand sanitizer, disinfecting wipes and Lysol sprays, Galanti said. It's eliminated inventory of some frozen proteins and limited sales of fresh beef, chicken and pork to three per customer, he said.

Costco completed a $4 billion debt offering on April 20 to give it more financial flexibility in case it was hit by vendor payments, Galanti said. It also retired some debt early, resulting in a $36 million pretax expense, which will be recorded in its fourth quarter. 

One analyst asked about food samples in stores — and if they'll ever return. Samples have long been a popular attraction for Costco shoppers, who often come with their kids and try a new food item as they're browsing the aisles. 

Galanti said the samples will slowly start to make a comeback in mid-June, but said the setup will look different than it did before. 

"I can't tell you any more, but it's needless to say, not going to be where you go and just pick up an open sample with your fingers," he said. 

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Costco March comps up by 9.6%