It seems that whatever the consumer mood is in the United States, Costco Wholesale can figure out how to thrive in it.
Last week, Costco reported a 5.8% increase in U.S. sales last quarter despite consumers feeling uncertain about the economy and looking for ways to fight the ongoing impact of inflation. The strong results sent Costco shares past the $1,000 mark to hit an all-time high. (On Monday, shares had traded down just a bit but were still hovering near that high-water mark.)
Costco has grown into the second largest brick-and-mortar retailer in the U.S. after Walmart by offering essential household items up and down the price spectrum at good prices enabled by its bulk business model. Add to that the “treasure hunt” aspect of shopping there that keeps shoppers, notably affluent ones, interested, and you have a perennially successful retailer, as detailed by Fortune earlier this year.
One factor among many playing to Costco’s strengths and helping it buck consumer hesitancy: More Americans, put off by higher restaurant prices, are opting to cook at home, according to the retailer’s chief financial officer, Gary Millerchip.
“We are seeing what we think is a little bit of a shift from food away from home to food at home, and that’s certainly reflected in strong meat and produce sales that we’ve seen,” Millerchip told Wall Street analysts on Thursday. Millerchip became CFO earlier this year, replacing executive Richard Galanti, who had been in the role for three decades. In other words, more Americans are eating at home rather than out at restaurants, and buying more ingredients from Costco to make those meals. (Costco is not ignoring its less affluent clientele, who are gravitating toward lower-price-per-pound items in categories like poultry, cuts of beef, and pork.)
That the U.S. consumer is adaptable and still spending, though following different patterns, echoes what Walmart’s C-suite recently told Wall Street in the wake of its strong recent results. Like Costco, Walmart has been adept at winning shoppers seeking bargains and good value as well as catering to the more affluent.
“U.S. customers remain resilient, with behaviors largely consistent over the past four quarters to six quarters. They continue to seek value to maximize their budgets while also choosing convenient options to save time,” Walmart CFO John David Rainey told Wall Street analysts in late November. Target, by contrast, recently gave a downbeat forecast for the current holiday season. “Consumers tell us their budgets remain stretched and they’re shopping carefully as they work to overcome the cumulative impact of multiple years of price inflation,” CEO Brian Cornell said on a call with analysts. Target’s shares fell as much as 20% when it reported its quarterly results last month.
Another issue all three retailers are grappling with? The potential Trump tariffs which threaten to slap high levies on imports from countries like China, Canada, and Mexico.
“We faced tariffs in the past, and we believe that our merchants and buyers are equipped, as anybody is, to sort of work through and navigate and manage that situation,” Costco’s Millerchip said last week. While noting that the specifics of which tariffs could be imposed have not been announced, Millerchip said that previous crises, like port strikes, helped Costco develop new crisis management tools, such as pulling inventory forward to have it on hand earlier.
When Millerchip became CFO in March, he replaced Galanti, an iconic executive who was seen as a central architect of Costco’s enduring success. Galanti is staying on to advise Millerchip until next month to make sure that baton is smoothly passed on. Indeed, when explaining why he was so sanguine about the tariffs, Millerchip, who had had a distinguished career at grocer Kroger before joining Costco, couldn’t resist invoking Galanti. “I’ll quote my predecessor, Richard. He’d say, ‘When it rains, it rains on everybody,’” he said.
