Costco raises wages as Q2 earnings beat estimates
- Costco’s second quarter earnings beat analyst estimates by a wide margin on Thursday. The retailer’s earnings rose 27% year over year to $889 million, or $2.01 per share, from $701 million, or $1.59 per share, according to the company report. Total revenue, which includes net sales and membership fees, grew 7.3% to $35.4 billion from $33 billion in the year-ago period, which slightly missed analyst expectations of $35.7 billion.
- Same-store sales, excluding fuel and foreign exchange moves, also grew a solid 6.7% and e-commerce sales jumped 25.5%. Shares of Costco were up 4% in pre-market trading Friday morning.
- The retailer also announced it will raise its starting wage from $14 to $15 an hour for employees in the U.S. and Canada. This follows last June's wage bump from $13 an hour.
Costco’s overall positive earnings were a result of many factors including a drop in gas prices, cheaper sourcing and a decrease in pricing pressures. But competition has forced the retailer to invest in its store and e-commerce business and increase its minimum wage.
Costco's second wage increase in a year comes shortly after Amazon bumped its minimum pay to $15 an hour. Walmart and Target have also boosted wages recently in what's become the tightest labor market in decades. Costco also raised pay for its supervisors and has started offering paid parental leave to its hourly employees.
Despite pressures from Amazon, Costco has continued to thrive and even surpassed Amazon in a recent customer satisfaction survey. This is apparent as the warehouse club’s membership signups continue to grow. Costco reported membership fee income increased 7.3% to $768 million over the year and renewal rates for the second quarter came in at 90.7% and total cardholders at 96.3 million.
Costco’s investments and partnerships in e-commerce could have something to do with that. The retailer has upped its delivery game in the past year or so with the launch of CostcoDelivery and same-day delivery partnerships with Shipt and Instacart — all of which are paying off. The retailer’s e-commerce sales increased on a reported basis by 20.2%. Same-day grocery delivery is now available to members within a short drive of 99% of locations and two-day delivery is available anywhere in the United States.
During its last quarter, the retailer cited growing pressures from supermarkets and Sam’s Club, but that didn't seem to be as much of a headwind this quarter. As pricing pressures have decreased, one of Costco’s top growth categories for the quarter was grocery.
“I think we've done a great job and we continue to do a great job particularly in fresh food organics where there's a little ... less pricing pressure and some competitive pressure," CEO Richard Galanti said during the company's earnings call.
Looking ahead, Costco’s next quarter could be negatively impacted by its minimum wage increase. But the impact should be minimal and more than offset by the retailer's strong store sales and growing online business.
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