Costco Sees Key Product Categories Turn Positive in September

What encouragement is to be found in September retail sales may best be found in the details, particularly as concerns Costco.

Much of its recent conference call that covered fourth quarter and full year results gave over to September numbers that clearly gladdened the man relating them, Costco CFO Richard Galanti.

Not that Costco had a bad year. Sales and revenues declined – earnings per diluted share for the year down to $2.47 from $2.89 last fiscal annum – but, given recession, deflation, frugality and other related challenges that haunted it through its fiscal annum, Costco did quite well and a lot better than most retailers. In fact, when foreign currency exchange rates and gasoline deflation are taken out of the picture, it’s comparable store sales, those in clubs open for at least a year, gained  by three percent in fiscal 2009.

Still, September was better and not only because returns were strong with comparable store sales, taking out gas and currently exchange, up four percent. How the money came in suggested that at least some of the recession’s worst affects have begun to fade.

Galanti noted that, in the Unites States, all regions but one enjoyed comparable store sales improvement in September. Southern California, battered by the recession, enjoyed a particularly significant turn around from earlier trends with the Bay Area and the Northwest also strong. In fact, California as a whole – and California is a Costco stronghold – had a two percent comp gain when gas deflation is taken out of the picture.

Looking at sales by product category also provided hopeful signs. Necessities such as food and consumables weren’t carrying the rest of the operation in September.

Galanti said, as transcribed by SeekingAlpha:

In terms of merchandise categories, all four core merchandise categories, food and sundries, hard lines, soft lines, and fresh foods, showed positive comps in September. In fact, hard lines and soft lines positive September comps represented the first time since over a year ago that these departments had comp sales figures without a negative sign in front of them.

Costco members had begun purchasing discretionary items again, providing evidence that consumers are starting to loosen up on the purse strings a bit, which, in turn, revives some hopes for retail sales gains in the holidays.

Costco is in a stronger position to capitalize on those sales. Despite the recession, the company opened a total of 15 net new locations in the past fiscal year, which ended Aug. 30, plus one in Mexico where it is a 50-percent owner of the operation. Of the 15, eight operate in the United States, two in Canada, and one each in the United Kingdom, Taiwan, Korea and Japan. And this summer, Costco opened its first location in Australia, in the city of Melbourne.

In fiscal 2010, Costco new store plans look for 15 to 18 openings with about three quarters in the U.S. Since the end of fiscal 2009, Costco debuted one new location in Phoenix and is on pace for five additional openings before the end of its fiscal first quarter on Nov. 22. Colorado, Missouri and Ohio are among the states getting new Costcos. Additionally, on Nov. 12, the company will open its first Manhattan location.

All told, Costco today operates about 560 locations around the world, including the 32 in its Mexico joint venture.