Costco crushes Q3 despite inflation challenges

Despite pressures caused by widespread inflation — from shipping and transportation to potato chips — the chain posted another very strong financial quarter.

For the quarter ended May 9, excluding gas, Costco reported same-store sales increased 15.2%, up nearly 13% compared with Q2. Net sales increased 21.7% to $4.38 billion. E-commerce sales climbed 38.2% in the quarter, compared with a 60% gain a year ago during the same period.

Nonfood sales, particularly in home goods, picked up in the summer and have continued, CFO Richard Galanti said during Costco’s Q3 call, noting that food sales are down compared with last year's large boom but up versus historical numbers.

Net income for the third quarter was $1,220 million, or $2.75 per diluted share, which included $57 million pretax, or 9 cents per diluted share, in COVID-19 related costs, primarily from $2 per hour premium pay. Last year’s third quarter net income was $838 million, or $1.89 per diluted share, inclusive of $283 million pretax, or 47 cents per diluted share of COVID related costs. 

Membership fees jumped 11% year over year to $901 million.

Galanti also reported during the call that the club store’s food sampling and demos program would return over the next couple weeks in a “phased return to full sampling.” Out of pandemic caution, the retailer had eliminated demos, testing in the summer some takeout-only and display-only options, but beginning mid-June will reinstate demos, following state restrictions and under safety protocols such as small batches and behind plastic barriers. 

Equally exciting for shoppers, Galanti noted food courts would be back in full force over the next few weeks, serving more than the limited menu it had be doing in select locations. As with sampling, there will be safety precautions in place, and the stores will follow state guidelines. The rollout will occur in waves. Galanti said with the menu will feature a new churro that will be in all locations by July 4, and a high end soft ice cream will replace frozen yogurt.