Costco e-commerce sales surge in second quarter, chief financial officer steps down

Costco Wholesale Corp. included e-commerce sales in its financial results for the third fiscal quarter. The company topped Wall Street analysts’ expectations, reporting net sales of $57.39 billion and touting increased shipments, website visits and app downloads.

Confirming e-commerce sales growth of 20.7% year-on-year, Gary Millerchip, executive vice president and chief financial officer at Costo, cited sales of gold and silver bars as important factors. Meanwhile, devices and electronics played a key role. CEO Ron Vachris, who took over in January, said there has been a renewed interest in discretionary shopping in Costco warehouses in categories such as toys and health and beauty products.

Two new warehouses were opened in the third quarter, both in the US, two more than in Loomis, California and Nanjing, China. Millerchip said Costco expects to open 12 new locations in 2024, including nine in the U.S., as well as “two in Japan and one in Korea.”

Costco is ranked No. 6 in Digital Commerce 360’s Top 1,000 Largest Online Retailers in North America. Digital Commerce 360 ​​classifies it as a mass retailer, a group that also includes Amazon.com Inc., Walmart Inc. and Target Corp.

Costco e-commerce sales in Q3

“The overall e-commerce sales growth in the quarter was driven by gold and silver bullion, gift cards and devices,” Millerchip said during Costco’s third-quarter earnings call, according to a transcript published by Seeking Alpha.

In other metrics, Millerchip pointed to increased activity on Costco’s website and apps.

“Our app downloads increased 32% year-over-year, with approximately 2.5 million new downloads in the quarter, bringing total downloads to over 35 million,” he noted. “Website traffic increased by 16% and average order value increased by 8%.”

Additionally, Millerchip said the retailer’s curated Costco Next marketplace added eight new vendors in the third quarter, bringing the total number of vendors in the marketplace to 75.

When asked about its “buy online, pick up in store” (BOPIS), which Costco refers to as “buy online, pick up in store,” Vachris described a focused effort to expand offerings into electronics as a priority.

“We are currently introducing an expanded option to pick up online purchases at the warehouse, the scope of which will always be limited depending on the quantity of goods in our warehouses,” Vachris explained. “We can’t expand into every category, but we are expanding because now we’re talking about TVs and other electronics that are out there – and yes, we see that as a real opportunity for us.”

Deliveries and Uber Eats

Meanwhile, deliveries increased this quarter, with Millership reporting a 28% year-over-year volume increase and facilities driving order fulfillment through Costco Logistics.

Costco has also expanded its partnership with Uber, which Millerchip briefly mentioned.

“Uber Eats previously delivered Costco orders in Texas, and the new agreement allows consumers to place Costco orders through Uber Eats throughout Canada and 17 states in the U.S.,” he said. “We are also working to expand this partnership to several of our international countries in the coming months.”

Millerchip said Costco will also begin selling Uber gift cards globally while providing Costco members with discounts for Uber One membership.

Signs of an increase in discretionary spending

In a quarter that saw price cuts announced by retailers such as Target and Walgreens, Millerchip reaffirmed optimistic inflation forecasts, with some price reductions at Costco warehouses as spending returned to discretionary categories.

“As inflation stabilizes, our members are returning to purchasing more discretionary items,” Millerchip said. “Growth in this category was driven by toys, tires, lawn and garden and health and beauty products.”

Vachris detailed customer spending habits, praising Costco buyers and stating that while “categories like the home goods and toys departments are categories that have lagged significantly post-pandemic,” Costco buyers have “rejuvenated these categories.” He cited “sporting goods”, “furniture” and “household goods” as other discretionary areas that saw renewed sales.

In terms of price cuts, Millerchip mentioned specific cuts to Costco’s Kirkland Signature pine nuts and Kirkland Signature frozen shrimp. However, he described Costco’s broader cutback strategies as targeted, not broad.

“We believe our strategy of delivering value to drive unit growth and member satisfaction is a winning combination for us,” he said. “In that spirit, our purchasing teams are constantly aware of changing costs across all of their SKUs and ensure we quickly capture any cost drops so we can transfer incremental value through price reductions.”

Growing the Costco retail media team

When asked about innovations and other changes that will occur in his first full quarter as Costco’s CEO, Vachris cited Costco’s retail media business as an area where he sees potential.

“We now have a significant retail media program and see tremendous growth potential,” he said. “We have built up this team and we see good potential there and also a good runway for us, things like personalization and so on.”

In particular, he cited the “big opportunity for data” as an area where other retail media networks are trying to differentiate themselves by using first-party data to target ads.

Costa’s earnings

For the fiscal third quarter ended May 12, 2024, Costco reported:

• Net sales increased to $57.39. That’s a 9.1% increase from $52.60 billion in the fiscal third quarter a year earlier.
• Costco’s net income for the quarter was $1.68 billion. That’s up from $1.30 billion the previous year.
• Costco’s e-commerce sales increased 20.7% year over year.

Percentage changes may not exactly match dollar amounts due to rounding. Check out more earnings reports. Here’s an update from last quarter.

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