By Traci Scott,
U.S. warehouse clubs and discount retailers recently reported a mixed bag of sales results. Shoppers looking to warehouse clubs for bargains on groceries contributed to increased food sales at both Costco Wholesale Corporation and BJ’s Wholesale Club, Incorporated, but both retailers reported sales of other items declined in the last quarter.
Costco, the largest warehouse club in the U.S. based on sales, reported profits fell 27% to $239.7 million, or 55 cents per share, for its fiscal second quarter. This compares to $327.9 million, or 74 cents per share a year earlier. Revenue declined to $16.84 billion from $16.96 billion for the quarter.
Costco reported customer visits were actually up 4% to 5% in January and February after 10 years of flat to 2% gains. However, average receipts declined from last year.
Costco said the sales of food, health and beauty items were the strongest categories for the quarter. However, shoppers have sharply restricted their spending during the economic downturn, limiting purchases to the most essential items.
Meanwhile, Costco’s smaller rival, BJ’s Wholesale Club, reported its net income for the quarter ended January 31 rose 5% as it continued to benefit from a focus on groceries.
Same-store sales at BJ’s rose 1.7 % for the quarter. Excluding gas, same store sales rose 6.4%. Its earnings rose 5% to $52.7 million, or 91 cents per share for the quarter that ended January 31. Revenue grew 3%.
BJ’s said food sales grew 11 percent for the quarter as shoppers stocked up on dairy, meat and prepared foods.
The strategies Costco and BJ’s are adopting for surviving the economic downturn differ. Costco said it will continue with its strategy of offering the lowest possible prices for customers, adding that a focus there will earn customer loyalty in the long run even if it means a short-term hit to margins.
“The customer gets it,” Costco Chief Financial Officer Richard Gallanti told analysts. “They are in our view, they are more value-conscious than ever before.”
BJ’s, on the other hand, has seen its market share grow by drawing shoppers away from traditional grocers, rather than from other wholesale clubs. BJ’s concedes that it is not the price leader on all items and indicated it will increase its competition against traditional grocers.
“Our goal is to be the first stop for food sales,” said Laura Sen, CEO for BJ’s.
Meanwhile, discount retailers also report a mixed bag of results.
Target continues to perform worse than last year. Its sales at stores open at least one year were down 4.1% in February, compared with February 2008. Conversely, Wal-Mart reported its same store sales were up 5.1%.
“February sales were in line with our planned range for the month, as our sales results continue to reflect the significant economic challenges facing our guests.” States Gregg Steinhafel, CEO for Target.
Target plans to open 27 new stores this year, with each store employing between 150 and 225 people. However, many headquarter positions have been eliminated in recent months, negating potential employment gains.
On the other hand, Wal-Mart’s 5.1% sales increase was more than double analysts’ estimates for a 2.4% increase, according to sales tracker Thomson Reuters.
Wal-Mart said falling gas prices helped boost its discount customers’ shopping budgets. More importantly, the company said it saw an increase in both customer traffic and the average amount spent. The retailer averages more than 130 million shoppers to its stores every week.
Given Wal-Mart’s status as a broad barometer of consumer strength, there’s some cautious sentiment among analysts that Americans are starting to feel a bit more optimistic about the economy and their jobs.
Others adopted a wait-and-see approach.
“It’s certainly good that these [retail sales] numbers aren’t as bad as they’ve been but you need to be careful not to be put too much stock in one month’s data,” said Scott Hoyt, senior director of consumer economics with Moody’s Economy.com..
Hoyt also noted that Wal-Mart’s results showed consumers are still shopping more for necessities than for discretionary items.
“Americans are still losing jobs at a prodigious rate, stock prices and home values are falling,” Hoyt said. “There’s not a lot of fundamental support to lift spending right now.”
Instead, Hoyt said he’s waiting to see April and May sales results after most households receive payroll tax credits as part of President Obama’s economic stimulus package.
“We’ll see if consumer spending picks up in April and May after the stimulus takes effect,” he said.
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