Costco Chief Financial Officer Richard Galanti warned on the company’s third quarter earnings call that the retailer is seeing “inflationary pressures” including higher labor costs, shipping container shortages, and increased prices on select products shipped from overseas.
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According to Galanti, shipping costs have increased on fresh meats and imported cheeses, plastic products including cups and plates, select apparel items and paper goods. He also cited various product shortages from “chips to oils and chemicals supplied by facilities hit by the Gulf freeze and storms.”
In March, Costco estimated inflation was rising in the 1% to 1.5% range, but now estimates inflation is in the 2.5% to 3.5% range, excluding gasoline sales. According to Galanti, the turnaround time for shipping containers to hit the U.S., deliver their contents and return back to the U.S. port to go back overseas doubled from approximately 25 days to 50 days.
“Despite these issues, we continue to work to mitigate cost increases and supply chain delays in a variety of different ways as best we can,” Galanti said. “The biggest way we’ve handled supply chain delays is adjusted ordering and front-loading, if you will, orders of many items that we think we’ve got that pretty well under control.”
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Inflation concerns aside, Costco still reported double-digit quarterly net sales growth of 21.7% to $44.38 billion, up from $36.45 billion a year ago. Net sales for the first 36 weeks of fiscal 2021 also posted double digit gains of 17.7% to $130.61 billion, up 17.7% from $110.94 billion last year.
The retailer’s comparable sales in the U.S. were 18.2% for the third quarter and 14.7% for the first 36 weeks of fiscal 2021. Adjusted for gas prices and foreign exchange, U.S. comparable sales both for the quarter and first 36 weeks were about 15%. E-commerce comparable sales came in 41.2% for the quarter and 65.1% for the first 36 weeks, respectively. When adjusted, e-commerce comparable sales were 38.2% and 63.6%, respectively.
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The Issaquah, Washington-based company reported a quarterly profit $1.22 billion, or $2.75 per share, which included a $57 million pretax, or $0.09 per share, in COVID-19 related costs, primarily from the elimination of $2 per hour premium pay. Total revenue came in at $45.2 billion for the quarter, including $902 million in membership fees.
Costco’s total member households reached 60.6 million as of the end of the third quarter, up from the 59.7 million-member households twelve weeks earlier, and paid executive membership totaled 24.6 million, an increase of 817,000 compared to the previous twelve weeks.
Shares of Costco are down 0.8% in after-hours trading following Thursday’s announcement.
View more information: https://www.foxbusiness.com/markets/costco-shipping-costs-rise-on-fresh-meats-imported-cheeses