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Costco CFO Cites Steady Private Label Growth

December 12, 2012

As sales continue to soar at Costco, Chief Financial Officer Richard Galanti told analysts Wednesday that the company’s private label penetration continued to build through the year.

“We continue to add products, everything from wine and spirits to can goods, and all kinds of nut and candy items,” Galanti told analysts, according to transcripts from Morningstar. “The big dramatic number (in private label penetration) came in the first half of calendar ’09 after the financial crisis, where we saw an unusually large increase in sales penetration of private label. I think on the food and sundries side over six months back down, it was like 300 basis points. But generally, we see a half- to three-quarters percent (gain) a year, and I’m not aware of anything that is different than that right now.”

Galanti also took time to talk about moves in Kirkland Signature apparel that showed strength in general merchandise categories in the company’s fiscal first quarter results of 2013.

“I think in apparel, certainly, we’ve made a conscious bigger commitment in several of those areas over the last year-and-a-half,” he told analysts. “I think I use the example last quarter, something as simple as the men’s Kirkland Signature pant, which I think we tested a couple of years ago with 100,000 units, and last year 200,000 units, and this year a million units at $60 or so a pair, and they’re doing well.

“So not only are we making a decent margin on the KS shirt – we’ve gone from just a standard one to a couple of different styles with sweat collar – so we’re up to 4 million-plus KS shirts, so overall, making some bigger commitments.”

Costco reported same-store sales rising 7 percent in the fiscal first quarter from a year earlier. Its earnings per share rose 20 percent from a year ago.

“Following on a strong fiscal 2012, Costco is sustaining the momentum in Q1,” Planet Retail U.S. Research Director Sandy Skrovan said. “The retailer’s strong performance, with double-digit overall sales growth and solid comparable store gains, reflects its ability to keep members engaged and renewal rates high. Costco’s treasure-hunt appeal and value/quality proposition, along with an assortment that blends everyday essentials with aspirational goods, is just what members want during the holidays.”

Skrovan also said that growth is expected to continue, particularly as Costco considers expansion.

“Planet Retail anticipates unmitigated growth in the coming year as Costco remains focused on high-velocity categories that boost shopping frequency, expands private label penetration, advances its e-commerce efforts and re-accelerates club expansion efforts,” she said. “We’re also watching for Costco to make a highly anticipated move into Continental Europe in the coming years. A new market entry could be in the offing by the end of 2013. While most of the retailer’s expansion will remain in the U.S., current growth plans suggest that Costco could double the size of its international business in the next decade and propel it up the retailing ranks.” 

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