Costco’s most recently quarterly report got a mixed review from Wall Street analysts and investors, but the warehouse retailer is in very good shape.
Retail analyst Bill Bishop, chief architect and co-founder of Brick Meets Click, says Costco has a lot going for it, including high quality perishables, membership fees and solid footing in the online space.
“Costco does a lot of online business,” he said. “They don’t need to grow as fast online (as competitors) because they’re already doing good business. They have a different model with membership fees, so they’re not at all exposed” to many of the pressures retailers are under as 2018 closes.
In its fiscal year 2019 first quarter report, Costco showed net sales were $34.31 billion, an increase of 10.3 percent from $31.12 billion during the first quarter last year.
However, financial analysts questioned CFO Richard Galanti on a conference call about Costco’s gross margin, which fell from 11.25 percent a year ago to 10.75 this quarter. Costco shares also fell after the report was released.
On the call, Galanti said the company was happy with its e-commerce sales, and he noted Costco just had its one-year anniversary of same-day grocery delivery.
“We feel good about (what) we’re building to accommodate even more growth in e-commerce and on the delivery side,” he said on the conference call. “And we know that we’ll see some of those costs associated with that come down as a percentage of those sales.”
Bishop said Costco is growing at a healthy and profitable level.
“Retailers are sustainable when they have a sustainable growth model,” he said.
Galanti mentioned that competition from Sam’s Club on fresh produce and meat has been intense, and fresh sales is down slightly year over year, but it was nothing that Costco’s leadership is concerned about.
“Look we’re respectful competitors,” he said. “We’ve been doing this for 35 years. We’re not moving away. And we feel we’re in a pretty strong area.”
On a lighter note, Costco can’t seem to keep cauliflower tots on the shelves.