Costco Eyes Kirkland Signature Growth To Offset Higher Prices
Costco’s chief financial officer said inflation across all of the retailer’s core merchandise categories was essentially flat in the third quarter with fresh foods close to zero and slight inflation in food and sundries being offset by some deflation in nonfoods categories.
“When we speak of inflation, or in the case of nonfoods deflation, we’re referring to our selling prices,” Gary Millerchip, Costco’s executive vice president and CFO, said during the retailer’s recent investor conference call to discuss third-quarter results. “We're intentionally creating incremental value for our members by delivering lower prices wherever possible. We believe our strategy of delivering value to drive unit volume and member satisfaction is the winning combination for us.”
He said the retailer’s buying teams remain constantly aware of changing costs on products across the store and are working to capture cost decreases quickly to allow those reductions to be passed on to shoppers.
“If we are unsuccessful in delivering ultimate value with branded goods, we evaluate the potential for new high-quality Kirkland Signature items with a goal of providing at least 20% value versus what we would sell the national brand item as,” Millerchip said.
During the third quarter, Costco released several new private label products including the Kirkland Signature men's walking shoe and new Kirkland Signature facial wipes, which he said are both selling well. Additionally, the retailer also reduced prices on several existing items, including lowering prices on Kirkland Signature pine nuts from $29.99 to $24.99 and reducing the price of Kirkland Signature frozen shrimp SKUs by $1.
The warehouse club’s efforts to identify opportunities to lower prices took place during a quarter in which sales were up 9.1% year-over-year to $57.39 billion. Net income for the quarter was $1.68 billion, or $3.78 per diluted share, up from net income of $1.30 billion, or $2.93 per diluted share, in the comparable quarter the previous year.
Comparable store sales exclusive of gasoline sales and foreign exchange were up 6.5% company-wide and up 6% in the U.S.
Millerchip said quarterly sales growth was aided by the warehouse club lapping some sales softness from a year ago coupled with its merchants identifying high-quality, high-value items that resonated with its shoppers. He pointed to growth in several categories including toys, tired, lawn and garden, and health and beauty aids as some of the strongest categories. Additionally, he noted bakery sales were strong driven by new items including the Kirkland Signature lemon blueberry loaf and morning buns.
Year-to-date, sales were up 7% to $171.44 billion with comparable store sales exclusive of gasoline and foreign exchange up 5.4% company-wide and up 4.5% in the U.S.
