Costco (NASDAQ: COST) continues to move steadily ahead. The retailer grew net sales for the second quarter by 7.43% to $34.63 billion, compared to $32.28 billion in the year-ago period.
Net income also rose to $889 million or $2.01 per share, a 27% increase compared to $701 million ($1.59 per share) in Q2 2018. Comparable store sales also jumped by 7.4% in the U.S. year-over-year, while international declines left the company with 5.4% overall comp sales growth.
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It was a typically strong quarter for the warehouse club, and its key metrics -- membership numbers and renewal rates -- remained strong. CFO Richard Galanti shared some of the company's highlights during the Q2 earnings call.
Renewal rates remain strong
Renewal rates in the United States and Canada inched up to 90.7% from 90.5% in Q1. The global rate climbed to 88.3% from 88% in the previous quarter.
The chain finished Q1 with 52.2 million members and added another 500,000 in the second quarter. In addition, total cardholders rose from 95.4 million at the end of the previous quarter to 96.3 million at the close of Q2. Executive memberships, which cost twice as much but offer customers cash back, rose by 341,000 to 20 million.
Wages are rising
Costco has generally had a good reputation for paying well, and according to Galanti it's now going to increase starting wages and raise pay for supervisors. He shared a few details about the chain's new three-year deal with its employees:
"We're taking our starting wages from $14 and $14.50 up to $15 and $15.50 per hour in both the U.S. and Canada," he said. "In addition, we're also increasing wages for supervisors and also introduced paid bonding leave for all hourly employees."
The CFO called the news wages "incremental to the usual annual top-of-scale wage increases that are typically done each March." He added that they would add "about 3-4 basis points to SG&A over the next four quarters."
Costco only added one new warehouse and relocated another in Q2. In the third quarter, the chain has three new locations planned, with no relocations.
"The big expansion quarter for us this year is Q4. We plan to open a net of 12 units -- 14 openings, including two relocations -- including our first opening in China in Shanghai in the city of Manjung and also our third unit in Spain, which would be our second in the Madrid area," the CFO said. "Though any of these could slip a little bit but our current best guess right now is 14 openings, including two relocations, so a net of 12."
Digital growth is strong
While the warehouse club was late to the digital party, it has steadily grown the business. E-commerce sales rose by 20.2% in Q2, according to Galanti. The CFO added that total orders were up and that grocery performed especially well.
"We have now passed our one-year anniversary on the grocery launch, which was, again, a year ago in October," he said."Same-day grocery delivery is now available to members within a short drive of 99% of our U.S. locations. Two-day grocery is available anywhere throughout the continental United States. And while, still, these are small pieces of our total business operation, they are growing nicely."
More of the same, really
Costco has built a fairly predictable business. The same-store numbers vary each quarter, but membership has risen steadily, as has the executive membership base. This is a well-run business using a model that lets the company see potential problems before they happen. As long as the renewal rate stays around 90%, the chain has little to worry about -- and if it dips below that, well, that's a sign the company should make some course corrections.
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