Costco starts FY strong amid consumer concerns

ISSAQUAH, WASH. —Despite slower sales on some high-ticket items, Costco produced another strong showing for its first quarter, with sales of food and electronics leading the way. Costco posted earnings of $262 million for the quarter and total sales of $15.81 billion, compared to $14.15 billion last year.

Earnings for the quarter, ended Nov. 25, 2007, were up 11% from the same period last year and allayed concerns that consumers are becoming thriftier amid signs of an economic slowdown. But the fact that food was the only sector to produce double-digit gains was some indication that shoppers are, in fact, slowing down.

Consumer electronics produced a comp-sales increase in the high single digits, despite price deflation in flat-panel TVs that’s driven down prices more than 20% since this time last year. “Electronics continue to do very well, though not as well as the craziness of the past few years,” said Costco cfo and evp Richard Galanti. The chain also reported that consumer electronics returns have decreased since it initiated a 90-day return policy last year.

Costco’s 6% increase in U.S. same-store sales for the quarter was far better than the low single digit gains posted by mass merchants like Wal-Mart and Target, and reflects a customer base of higher-income consumers more immune to high gas prices. But Costco did report a slump in sales of high-priced discretionary items like diamonds and jewelry toward the end of the quarter, a sign that even middle-and upper-income shoppers are scaling back.

Overall, Costco said it expects to emerge from the holiday season in good shape with solid sales across the board. “We expect to come out of the holiday season clean in terms of inventory,” said Galanti.

One area where sales increased more than expected was at Costco.com . Galanti said sales jumped 45% in the first quarter and that total sales for fiscal 2008 are on pace to exceed $1.5 billion.

Costco opened 10 new stores during the first quarter and ended with 529 stores. It expects to open seven new stores in the second quarter and 30 for the full year, along with nine relocations.