“Costco’s ‘giant packs of kale’ help draw in younger shoppers” by Angel Gonzalez at Seattle Times. “Richard Galanti said on Thursday’s earnings call that organic beef and “giant packs of kale” help drive in younger customers. Costco can offer big savings on these relatively bigger ticket items and get better profit margins as well, Galanti said.” Read more
“Why Target Corp’s online strategy is missing the mark in Canada” by Hollie Shaw at Financial Post. “I guess if a company can’t spend the money for a website that gives a strong impression of the products they carry, well we shouldn’t be surprised that we’re disappointed when we get into the store,” read a recent comment from customer Judy Danelley on Target’s Canadian Facebook page.” Read more
“Kroger stock hits new high on $1.5B profit report; Comp sales up 3.6% for year” by Alexander Coolidge at Cincy Enquirer. “Kroger’s portfolio of goods sold under Kroger, Simple Truth, Private Selection and other names accounted for 24.4 percent of sales in the latest quarter, excluding pharmacy and fuel. The company said Simple Truth is on track to become a $1 billion brand by the end of 2014.” Read more
“Cerberus Buys Safeway (#2 grocer), Merges with Albertson’s (#5 grocer)” by Brian Solomon at Fortune. “After a long courtship, private equity giant Cerberus Capital Management agreed to buy Safeway for over $9 billion on Thursday afternoon. Safeway, the 2nd-largest grocer in the US, will merge with Albertson’s, the 5th-largest grocer.” Read more
“Amazon SKU Limits On Novelty Items Devastate Some Longtime Sellers” by Christopher Zara at Int’l Business Times. “Last month, the Seattle-based retail giant began informing some merchants that SKU caps are being imposed on “novelty” items, a broad category that can include anything from T-shirts to gag toys. In some cases, sellers say they are being limited to 100,000 items; in other cases the limit is said to be as low as 25,000 items.” Read more
“Rite Aid’s Feb. Same-Store Sales Up 1.5% (Down 1.8% in front-end)” “February front-end same store sales decreased 1.8 percent, of which 0.5 percent was attributable to a decrease in sales of flu-related over-the-counter products.” Read the release
“Fred’s Feb. Same-Store Sales Down 2.2%” “Fred’s total sales for the month were $157.5 million compared with $159.0 million in February 2013.” Read the release
“More men in retail grocery aisles” by Kim Souza at The City Wire. ““About 35% of men don’t have a significant other, many are marrying later,” Long said. “They routinely shop for what they need and that continues even after they get married.” The average age of a marrying male today is 29, versus 25 in the 1980s. About 43% of the men between the ages 18 to 49 live with a spouse, and 22% live with parents. That leaves 35% of men flying solo when it comes to making brand decisions and filling up the shopping cart.” Read more
“Heard on the Call” – Highlights from Costco’s Q2 Earnings Call
Richard Galanti, CFO:
While earnings results for the first four weeks of Q2 were very weak, our earnings in the subsequent eight weeks of the second quarter showed improvement.
We opened three new locations in the second quarter, two in the U.S., one each in Illinois and Texas and one also in Ontario, Canada.
We would expect to end the year with 30 new openings for the year.
Q2 category comps:
Food and sundries: low single digits.
Hardlines: mid-single digits.
Electronics: slightly positive for the quarter overall.
Softlines: Within the mid-single-digit comp range.
Fresh foods: up in the mid high single digits, overall, with produce being strongest.
February category comps:
Food and sundries: low single digit range
Hardlines: slightly negative
Electronics: down in the mid-single-digit range
Softlines: was the strongest area in the mid to high single-digit range
Fresh foods: mid-single-digit range overall. Again, produce being typically strong.
For February traffic was up just under 3% shopping frequency. Again the reported average transaction was down about a little over 1%.
New membership signups in the second quarter company wide were up 13% year-over-year, again, mostly reflective of very strong signups some of our international openings.
We began e-commerce operations in Mexico a few months ago.
E-commerce tests: We are testing in the Bay area one of several retailers with the Google Express, and we are also testing a few other things that we will let you know more about as we do it.
Q&A with Richard Galanti
Q: Where are margin pressures in fresh food? A: It’s particularly in the proteins. We talked about chickens before. We have held the price on that chicken. Those 65 or 70 million rotisserie chickens…It is also frozen and fresh.
Gasoline sales as a percent of our company total sales is 11% or 12%.
Our hearing aid business although small is very strong.
Q: Has Costco done market research looking at the number of your members that also have an Amazon Prime membership and do your merchants have any sense for how much this might be impacting spending at Costco? A: …the answer is no. There is not a lot of discernible concern at this point of that.
One of the first systems going in our modernization effort is that a new membership system which we will start rolling out in the U.S., I believe in June, July.
Goal to open 30 to 35 years new stores/year for the next five years.