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Here’s What Drove Costco’s Fiscal 3Q17 Sales

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Costco tops sales estimate

Costco Wholesale’s (COST) fiscal 3Q17 sales of $28.9 billion came in ahead of Wall Street’s estimate, rising 7.8% YoY (year-over-year) thanks to a rise in the average transaction and shopping frequency. In comparison, rival Target (TGT) also posted better-than-expected sales in fiscal 1Q17. However, its sales fell 1.1% YoY, reflecting a fall in store traffic. Walmart (WMT) reported improved sales, driven by the stellar performance of its digital arm in the United States (SPY) and increased store traffic.

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Segment details

Costco’s top line consists of sales from its warehouses and membership fee revenue. During the quarter, Costco’s net sales rose 7.9% to $28.2 billion, driven by a 5.0% rise in comps (comparables). Membership revenue rose 4.2% to $0.60 billion in fiscal 3Q17, driven by strong renewal rates (90.2% in the United States and Canada and 87.5% globally) and increased penetration in executive memberships.

Comps remained strong

In fiscal 3Q17, Costco’s comps rose 5.0%, driven by a 2.0% rise in the average transaction and a ~3.0% growth in average shopping frequency. Notably, average shopping frequency rose 4.0% in the United States.

By region, comps rose 6.0% and 2.0% in the United States and Canada, respectively. Comps rose 4.0% in other international locations. Excluding the impact of currency movement and changes in gas prices, comps rose 5.0% and 3.0% in the United States and Canada, respectively. Other international locations witnessed a 6.0% rise in comps.

By merchandise, food and sundries registered low single-digit growth, driven by increased sales of spirits, candy, and deli items. As for fresh foods, comps rose in the low single digits. Tobacco continued to report sluggish sales. Hardline and softline sales rose in the mid-single-digit range, driven by increased sales of health and beauty products, tires, hardware, apparel, and housewares.

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