Comp sales acceleration may be ending at Sam’s

Sam’s Club run of six consecutive quarters of accelerating same-store sales growth will come to an end in the third quarter unless the warehouse club operator exceeds guidance provided earlier this week after reporting a 5% second-quarter comp increase.

Even though Sam’s president and CEO Brian Cornell noted that momentum remains strong, he added that “it’s important to remember that it was in the third quarter last year that our comp performance began to accelerate, so our comparisons for the back half will be more challenging.”

Sam’s produced a 2.4% comp increase in the third quarter last year, and guidance for this year’s third quarter is for a 3% to 5% increase, which is the same guidance provided at the beginning of the second quarter. Sam’s ability to achieve its comp targets will be impacted by its ability to continue to pass through inflation. During the second quarter, Cornell noted that between 200 and 250 basis points of the 5% comp gain was attributable to inflation.

As for the moderation in third quarter same-store sales expectations, it follows a second quarter performance that Cornell described as outstanding, as traffic and transaction size for the Advantage and Business customer segments increased and comps were strong across Sam’s three operating divisions.

“Sam’s Club posted its sixth quarter of sequential improvement, as comp club sales, excluding fuel, increased 5%, at the top of our range. We have the best momentum in membership we’ve seen in years, driven by strong renewals and growth in members joining at the Plus level,” Cornell said. “Not only did we leverage expenses, but we also grew operating profit, without fuel, by 13.3%, much faster than the growth in sales.”

Sales grew 4.9% to $12 billion and operating profit was $467 million. If fuel is included, total sales grew 9.5% to $13.6 billion and operating profits increased 15% to $492 million, reflecting the beneficial impact of gasoline prices that were approximately 43% higher than the prior year and a 16% increase in the number of gallons sold.

“Volatility in fuel prices can have a notable impact on our financial results,” Cornell said.

From a merchandise standpoint, Sam’s continues to experience solid results in the fresh, dry grocery, beverages and health and wellness areas where comps were said to be in the mid-to-high single-digit range. However, the performance in more discretionary areas such as home and apparel was also good.

“Driven by very strong sales in men’s, children’s and basic areas, apparel achieved a double-digit comp increase this quarter,” Cornell said. “Our homeline area achieved a high single-digit comp, as kitchen electrics, housewares and domestics were all strong. Even with average selling price deflation, our consumer electronics business delivered a mid-single-digit comp-sales increase.”