Extracting positives from Costco’s third-quarter 2016 fiscal earnings

Earnings Analysis: Analysis of Costco’s third quarter 2016 financial results

(Continued from previous part)

Merchandising results

Costco’s (COST) retail sales (RTH) performance in Q3FY16 was relatively strong across most merchandising categories. The highest results were recorded for hard goods, especially sports goods, toys, automotive, seasonal products, consumer electronics and gardens and terraces.

Costco rivals Walmart ( WMT ) and Target ( TGT ) also posted above-average performance in toys, apparel and home furnishings. However, like many (XRT) (XLY) retailers, Target faces a challenging consumer electronics market due to secular factors affecting the industry.

Plus from the increase in e-commerce sales

Costco also saw above-average e-commerce sales growth. Costco’s online sales increased 14% year-over-year in reported data and 13% year-over-year. On a currency-neutral basis, Costco’s online sales grew 15.5% in Q3FY16. Meanwhile, rivals Walmart and Target increased online sales by 7% and 23%, respectively, in recent quarters.

Costco has partnered with online delivery services such as Google Express, InstaCart and Jet.com to make its private label Kirkland Signature and other Costco products available through these channels. This can provide some benefits to the retailer. Costco will be able to serve customers over a larger geographic area and also keep distribution capital costs low.

Over the past few quarters, Costco has steadily expanded its offerings into new international markets. Costco’s online portal currently serves six markets, and the company added Korea and Taiwan this fiscal year. Costco also has a presence on Alibaba’s (BABA) Tmall Global, making its products available in China.

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