Merchandise sales and membership fees

Costco Wholesale Corp. (COST) is a big box retailer and wholesale warehouse club operating approximately 800 locations in North America, Asia and Europe. It also has a significant e-commerce activity. The company’s warehouses offer low prices on a limited selection of branded and private label products, usually offered in bulk.

Customers purchase subscriptions to access warehouses and make purchases. Costco aims to offer lower prices than its competitors by purchasing merchandise direct from manufacturers, limiting store hours, and minimizing labor by storing merchandise on large racks above a large self-service warehouse.

Costco offers merchandise in categories including:

  • Food and miscellaneous items
  • Hard lines (such as major appliances, electronics, and hardware)
  • Fresh food
  • Softlines such as clothing and small appliances
  • Auxiliary (which includes gasoline and pharmaceuticals)

The company also generates a small percentage of its revenue through membership fees. Costco’s main competitors include discount stores such as Target Corp. (TGT) and Walmart Inc. (WMT), as well as big box competitors like BJ’s Wholesale Club Holdings Inc. (BJ).

Key points to remember

  • Costco is a wholesale retailer that sells products at discounted prices in member warehouses and online.
  • The two fastest growing areas are fresh foods and hard products such as hardware and major appliances.
  • The fastest growing segment is international operations.
  • The e-commerce business recorded a 75.8% increase in comparable sales in the second quarter of fiscal 2021, boosted by the COVID-19 pandemic.

Costco Financial Data

In the second quarter of fiscal 2021, which ended February 14, 2021, Costco recorded year-over-year (YOY) gains in revenue and net income. Total revenue increased 14.6% year-on-year to $ 44.8 billion. Net income (including net income from non-controlling interests) increased 2.5% year-over-year to $ 971 million. the The company said its e-commerce comparable sales grew 75.8% year-over-year.

Food and sundries grew 17.6% in the second quarter of fiscal 2021. They account for 40% of Costco’s net sales, making it the largest contributor to the company’s total net sales. But Fresh Foods and Hardlines were the fastest growing categories, with year-over-year net sales increases of 23.1% and 22.6%, respectively. Fresh Food represented 14% of sales and Hardlines 19% over the period. Softlines grew 20.3%, representing 12% of revenue. Ancillary and other products are the only product category that recorded a decrease in sales, which decreased by 9.1% and represented 14% of total net sales.

Costco also provides information on revenue generated from membership fees. Membership fees are generally a much smaller portion of total income. For the second quarter of fiscal 2021, for example, the company reported $ 881 million in membership fees, or about 2% of total revenue.

Costco lines of business

Costco divides its business into three reportable segments, breaking down results geographically and by revenue and operating result: Operations in the United States, Canadian operations and other international operations.

Operations in the United States

The bulk of Costco’s business comes from its operations in the United States, making it the largest of the company’s three featured segments. For the second quarter of fiscal 2021, operations in the United States reported total revenue of approximately $ 32.1 billion, an increase of 12.6% year-over-year.

During the same period, the segment reported operating profit of $ 790 million, down 3.8% year-on-year. For the second quarter of fiscal 2021, U.S. operations represented 72% of Costco’s total revenue and 59% of company-wide operating profit.

Canadian operations

Although significantly smaller than its US operations, Costco continues to do significant business through its Canadian operations segment. This segment reported total revenue of approximately $ 6.0 billion for the second quarter of fiscal 2021, an increase of 14.7% year-over-year. Canadian operations also posted operating income for the quarter of $ 236 million, an increase of 16.8% year-over-year. For this quarter, Canadian operations represented 13% of Costco’s total revenue and 18% of the company’s operating revenue.

Other international operations

In addition to the United States and Canada, Costco operates member warehouses in Mexico, United Kingdom, Japan, Korea, Spain, Australia, France, China and Iceland, and these latter countries are represented. in the Other international operations segment. For the second quarter of fiscal 2021, other international operations generated total revenue of approximately $ 6.6 billion, an increase of 24.9% year-on-year.

Other international operations also posted operating income of $ 314 million in the second quarter of fiscal 2021, an increase of 29.2% year-over-year. This makes this segment the fastest growing segment in terms of total sales and operating profit. It represents 15% of turnover and 23% of operating income.

Recent Costco Developments

On February 25, 2021, Costco CEO W. Craig Jelinek announced that he would increase his starting salary to $ 16 an hour, from $ 15 an hour in 2019. The majority of Costco employees are paid more than $ 25. one hour. Jelinek said that paying higher wages “is not altruism” and that it “makes sense to our business and is a significant competitive advantage for us. It helps us in the long run by minimizing turnover and increasing turnover. maximizing employee productivity “.