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Costco CFO Says Private Label Share Increasing

May 31, 2013

In announcing earnings for the company’s fiscal third quarter, Costco Chief Financial Officer Richard Galanti was asked about the potential future growth of the company’s Kirkland Signature private label line.

Galanti said private label share at the company was growing and had plenty of room to continue, particularly as the company expanded internationally.

“I think it’s still in the low to lower mid 20s, but it keeps going up incrementally,” Galanti said of private label share, according to transcripts of the earnings call with analysts by Seeking Alpha. “Part of that is the increased penetration of some of those items overseas, where whatever extreme value we are, it’s even more extreme on those kinds of things. We have items that do $2,000 and $4,000 a pallet position in the U.S. that do 5 and 10 times that in some of the Asian countries, simply because it’s a great value on great stuff. And we can be even more extreme over there versus brands.”

He added that most of the basic private label moves in areas such as paper and water had been made, but there were plenty of categories such as apparel and electronics that could be explored.

“So yeah, we continue to look at different areas, and in this past year, I know we’ve put it on some women’s exercise apparel, active wear, which has been very successful,” he said, according to the Seeking Alpha transcripts. “I know we have several men’s summer items, whether it’s shorts, performance polo shirts. And so it’s food and non-food. I don’t see any discussion of putting it on a television or anything anytime soon. But certainly there’s a lot of categories. You know, all the low-lying fruit, paper goods, water, those are all done. But probably the lowest lying fruit in the last few years was probably the disposable diapers. “

Whether the categories expand or not, though, Galanti said organic growth within current Kirkland products can help increase share.

“It always amazes me when individual food items, the cashew clusters or something innocuous like that, is a $15 million item and $25 million and $30 million a year later,” he said. “All of a sudden you’ve got those types of things out there. So, you know, I think [private label share] will scale slowly through the 20s and upward, but it’s not like we have a concerted effort to try to get to a number by next year. “

Costco reported same-store sales up 5 percent in the quarter from a year earlier. Total sales rose 8 percent and earnings climbed 18 percent to $1.04 a share. The company announced it would open 150 stores in the next five years, with two-thirds of them planned internationally.

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