Costco Reports 1st Quarter 38% Earnings Increase and a Strong Outlook

Costco just reported first quarter earnings for the 12 weeks ending November 22, 2020. Total company sales increased 15.4%, with the U.S. reporting 14.6%, Canada 16.2%, and other international markets reporting 18.7%. Net income was $1,166 Million compared to $844 Million last year. Fully diluted earnings per share were $2.62 versus last year’s $1.90 per share. That is a 38% increase!

The company indicated that the quarter included a tax benefit of $145 Million, or $0.33 per diluted share; $0.16 of which was due to the deductibility of a $10 per share special cash dividend received by the company’s 401(K) plan participants, and $0.17 cents related to stock-based compensation. Last year, the first quarter similarly included a $77 Million, or $0.17 per diluted share, tax benefit related to stock-based compensation. Management noted that this year’s results also reflect an expense for COVID-19 premium wages of $232 Million pre-tax ($0.35 per share).

Overall, merchandise inventory increased 21.7% as the company prepared for the holiday selling season. There were particularly strong sales results across diverse product categories. Fresh fruit continued to be a highlight and sold well during the quarter. That strong sell-through meant there was less spoilage this year and that was a major benefit. Electronics, appliances, and furniture also were strong performers and show that inventory investments in such home categories were smart moves. In addition, the company benefitted from higher productivity and that manufacturers sponsored fewer promotions – combined, this made the environment more favourable for a profitable quarter.

The quarter ended just before the U.S. Thanksgiving, but management noted that there had been substantial holiday shopping before the traditional Thanksgiving starting point.

The membership renewal rate stayed at a high 90.9%. Such high levels demonstrate continued trust in the company by the shoppers, and that is a very powerful competitive edge.

Costco currently operates 803 warehouses worldwide. Costco operated e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, Taiwan, and Australia. Total e-commerce business increased a strong 86.4% over last year.

The uncertainty about the intensity of COVID-19, and the possibility that some units may have to close, is overshadowing the near-term outlook. At the same time, management indicated that its pharmacies will participate in phase 2 of the vaccination program. That should bring more customers to the warehouses and create more shopping opportunities. While it is unclear how customers will act in the near future, I believe Costco will benefit from customer loyalty and trust and continue to see strong results.

Source: Forbes

Empire Q2 Profit and Sales up, Plans Online Grocery Expansion in Alberta

Empire Co. Ltd. reported its second-quarter profit and sales rose compared with a year ago as it announced plans to expand its Voila online grocery service to Alberta. The company launched the service in the Greater Toronto Area this past summer, with plans to launch Voilà under its IGA banner in Quebec and in Ottawa in early 2022. The company says it will launch Voila curbside pickup service in Alberta next year before starting home delivery service from a new customer fulfilment centre to be built in Calgary in 2023. 

Empire’s e-commerce sales more than tripled in its second quarter, growing 241%. Empire chief executive officer Michael Medline touted the high customer satisfaction rates for the new e-commerce service, taking a shot at online grocery competitors. Voilà is winning customers over “because people do not have access to a reliable service that treats the customer with respect,” he said. “We are giving Canadians an e-commerce solution they can trust, will show up when expected, and will deliver the products they ordered,” Mr. Medline said.

Empire reported a profit of $161.4 million or 60 cents per share for the quarter ended Oct. 31, missing analysts’ expectations. Analysts on average had expected a profit of 65 cents per share for the quarter and $6.93 billion in sales, according to financial data firm Refinitiv.

The second-quarter result compared with a profit of $154.6 million or 57 cents per share a year earlier when the results were boosted by unusually large property disposals by Crombie Real Estate Investment Trust that added six cents per share.

Sales in the quarter totalled nearly $6.98 billion, up from nearly $6.44 billion in the same quarter last year. Same-store sales, a key metric for retailers, were up 7.3%. Excluding fuel, same-store sales were up 8.7%.

On a call with analysts on December 10, Medline said the company was taking steps to prepare for reduced capacity in its stores this winter, by adding outdoor structures and heaters to shelter customers waiting in lines outside and by offering virtual queuing technology to streamline the process.

Sobeys said in November that it was bringing back pay premiums for employees in cities that have seen new lockdown restrictions due to COVID-19, after offering raises earlier in the year. Sobeys also said in October that it was committed to negotiating with vendors about fees, after groups complained about other major food retailers like Loblaw Companies Ltd. and Walmart Canada unilaterally hiking fees on suppliers. Food retailers charge their suppliers fees to cover costs such as marketing and distribution.

Source: Globe and Mail
Source: Toronto Star

Dollarama Reports Q3 Profit up From Year Ago, Announces Employee Bonus

Dollarama Inc. reported higher sales and increased its dividend to shareholders on December 9, as the discount retailer continues to benefit from demand for items such as cleaning and other household products during the pandemic. The company’s comparable sales – an important metric in retail that shows growth not accounted for by new store openings – rose 7.1% in the third quarter. Dollarama opened 19 new stores in the quarter ended Nov. 1. Overall sales were $1.06-billion, a 12.3% increase compared with the same period last year.

Seasonal items related to summer and Halloween sold well, as did cleaning supplies, household items and health and beauty products. Meanwhile, as people were discouraged from getting together for special occasions, sales of party supplies and greeting cards were down.

“Despite stay-at-home directions, social-distancing measures and in-store capacity limits in various provinces, we saw a lot of customers looking to safely celebrate Halloween this year – even if that meant staying within their household bubbles to do so,” chief executive officer Neil Rossy said. “The popularity of seasonal and festive items in the third quarter is a positive trend as we enter the seasonally important fourth quarter.”

As is the case for most retailers, the holiday shopping season is the most important sales period for Dollarama. Because the chain sells items considered essential, its stores have been permitted to remain open even in jurisdictions where lockdowns have begun again. But restrictions on store capacity in many provinces – which Mr. Rossy said he endorses – is affecting traffic in the weeks leading up to Christmas.

Dollarama also announced a new round of bonus pay for store staff as the second wave of the COVID-19 pandemic intensifies. It joins other retailers such as Sobeys owner Empire Co. Ltd., Metro Inc. and Walmart Canada, which have recently announced pandemic-related bonuses. Dollarama announced on on December 9 that it will pay a one-time bonus of $200 for part-time employees and $300 for full-time employees. The company employs more than 26,000 staff at 1,333 stores across Canada. In an e-mailed statement, the company added that warehouse and distribution centre workers have also been receiving bonuses, but would not provide specifics.

Dollarama increased its quarterly dividend payout to shareholders by 6.8% to 4.7 cents per common share.

While more of Dollarama’s stores were open during the quarter than in the height of summer when more restrictions were in place, Dollarama is still seeing customers visit stores less often. But people are buying more each time they shop: The size of the average transaction increased 26.3% in the 13 weeks ended Nov. 1, while the number of purchases was down 15.2%.

The company reported third-quarter earnings of $161.9-million or 52 cents a share, compared with $138.6-million or 44 cents in the same period last year.

Dollarama has begun to see price pressures emerging in raw materials as well as the cost of freight, which could lead to retailers marking up prices to preserve their margins, Mr. Rossy said. Dollarama’s approach continues to be that it will follow others on markups rather than moving first, CFO Mr. Ross added.

E-commerce sales have spiked during the pandemic, and many retailers have moved to offer store pickup for online orders, but Mr. Rossy said that for now, Dollarama continues to see its e-commerce offering as a solution for bulk purchases only. Having store staff pick and pack orders for pickup is not “economically viable” in Dollarama’s price range, at least for the time being, he said.

Dollarama expects to open between 60 and 65 net new stores before the end of 2020, Rossy said.

Source: Globe and Mail
Source: Toronto Star