Costco's winning streak continues as e-commerce grows

Dive Brief:

Costco on Thursday reported that fourth quarter net sales rose 5% to $43.4 billion, up from from Q4 last year (which included an extra week). Net income in the quarter reached $1.04 billion, up from $919 million last year. Membership fees rose to $997 million in the quarter, up from $943 million a year ago.
U.S. comp sales rose 10.8% as Canada comps rose 5.7% and international comps rose 6.7%, according to a company press release. E-commerce comparable sales rose 26.2% in the quarter, the company also said. Companywide, comps rose 9.5%.
For the 52 weeks of the full year, net sales rose 9.7% year over year to $138.4 billion from 2017 (which also had an extra week), the company said. Net income for the year reached $3.13 billion, up from $2.68 billion in the prior year.

Dive Insight:

Costco is fueling e-commerce sales on its own terms, taking care which merchandise is offered online and which areas get speedy delivery.

"We don't see e-commerce taking over our brick and mortar," Costco Chief Financial Officer Richard Galanti told analysts on Thursday, according to a transcript from Seeking Alpha. "We've also tried to figure out how to do some of the e-commerce or delivery related activities that some members want and then we could provide savings too, but doing it our way. So, I think there is still plenty of low-hanging fruit. And, we don't want to get comfortable at just shopping at Costco online, unless there is not a Costco within 100 miles."

Amid fierce price competition, especially on consumer goods, Costco aims to be "usually the last to raise the price and the first to lower," Galanti also said.

The company's ability to hold on, and grow, its base of loyal members make it "one of the top performers in all of global retail, with its superior execution ability resulting in a quantitative credit profile that leads the rated retail universe," Charlie O'Shea, vice president at Moody's, said in emailed comments. On Thursday, the ratings firm upgraded the Costco's credit rating and declared its outlook "stable."

"Costco has proven the portability of its membership/warehouse concept, with a very successful and expanding international operation, which is a key characteristic of an Aa retailer, augmenting its already highly-successful North American business," O'Shea said. "Membership continues to expand, creating an annuity-stream of revenue, with renewal rates remaining high even when fees are increased, indicating that the concept is still resonating with consumers."

But Costco's strong results mostly met expectations, and Wells Fargo analysts led by Edward Kelly said the membership retailer may be bumping against the limits of its growth. "Comps seem destined to slow in 2019 as it cycles numerous internal initiatives and external tailwinds, the digital narrative hasn't improved enough to completely debunk the long-term risk, and the long-term earnings growth outlook is attractive, but maybe not as spectacular as the stock price suggests."