Costco did not seem overly concerned about the Trump administration’s 25% tariffs on Canada and Mexico during its second-quarter earnings call on Thursday, but it reminded shareholders that grocery items will be particularly vulnerable.
Costco CEO Ron Vachris said that margins are very tight for food, but the retailer’s buyers are working closely with suppliers to see how they can bring goods to market.
“The tariffs are very fluid right now, so it’s hard to really give any predictions on what we can do,” Vachris said during the call. “But we are prepared. Our people are very well-equipped to lower prices and defer any cost increases that come our way.”
Fresh food helped bolster a relatively solid quarter for Costco. The warehouse retailer reported that net sales for the quarter increased 9.1% year-over-year, and comparable sales in the U.S. were up 8.3%. Fresh food saw increases in the high single digits, led by double-digit growth in meat, where Costco continues to see a shift toward lower-cost purchases. Ground beef, poultry, bakery, and produce also performed well as food and sundries experienced low- to mid-single-digit growth.
Inflation for the quarter was in the low single digits; however, fresh food was the most inflationary, driven by meat and bakery.
Traffic and ticket sales increased 5.6% and 2.6%, respectively, in the U.S., but Costco is still seeing shoppers who are selective with their purchases but appear to spend more on at-home food items.
Costco puts the gas on ecommerce
Ecommerce grew 20.9% year-over-year in the second quarter, and Costco reported progress in some digital categories. A new warehouse app tool, which allows members to view local warehouse item availability and prices, had over 43 million visits. Costco also sent out tailored digital messaging to members based on their previous shopping behavior. The Issaquah, Wash.-based retailer sees significant growth opportunities in retail media but is still in the experimental phase.
“We need to continue to build out the infrastructure and capabilities, and I would say we are not only building those out to deliver on a retail media platform that we want to create for our CPG suppliers, but also to build out more of a personalized capability for our own membership experience,” Costco Executive Vice President and CFO Gary Millerchip said during the earnings call.
Millerchip said it is likely to be a multi-year roadmap.
February was another strong month for Costco with the retailer showing an 8.8% increase year over year in net sales at $19.81 billion. Comparable sales in the U.S. were up 8.6% while ecommerce increased 19% year over year.
Costco’s wage increase kicks in
Costco’s new pay structure for hourly employees kicked in during the second quarter. Top nonunion employees will receive a $1-per-hour raise for the next three years, with pay increasing to $30.20 per hour in the first year. The lowest-paid workers will see an increase of 50 cents per hour. About 18,000 Costco workers in five states threatened to strike in February if wages were not improved.
Membership fee increase begins
Membership fee income increased 7.4% year-over-year, reaching $1.193 billion. Costco announced last year that it would raise fees, which contributed about 3% of the membership fee income for the second quarter. The impact of the fee increase will be seen over the next four quarters, with the largest impact expected in Q4.
Costco’s 900th location is on the way
Costco only opened one new warehouse in the second quarter, but six new openings are planned in the coming weeks, including its 900th location in Sheridan, Mass. The company plans to open 25 new locations in 2025.
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