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Costco looking at alternative sourcing, price hikes as tariffs loom

By
Reuters
Published
today May 31, 2019
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Costco Wholesale Corp on Thursday reported quarterly profit and revenue that beat Wall Street estimates and said it would tackle the proposed round of tariffs on Chinese imports by sourcing goods from other countries and possible price increases.


Excluding one-time items, Costco earned $1.89 per share in the third quarter ended May 12. Total revenue rose 7.4% to $34.74 billion - Costco


The warehouse club operator is the latest American retailer to warn of tariff hit, after dollar store chains Dollar Tree and Dollar General, earlier in the day, said rising tariffs would impact their businesses and consumers.

Costco’s Chief Financial Officer Richard Galanti, on a post-earnings call with analysts, said the situation is “pretty fluid” and the company is looking to accelerate shipments before certain tariffs are put into effect.

“At the end of the day, prices will go up on things. What’s interesting is that it’s hard to predict what the impact is,” Galanti said.

“We want to be the last to raise them. And when prices are going down, we want to be the first to lower them. We’re not afraid to use some of those monies to again drive business.”

Washington escalated its trade war this month by raising tariffs on $200 billion of Chinese imports to 25% from 10%. President Donald Trump also threatened new tariffs on remaining $300 billion worth U.S. imports from China.

Costco, which faces competition from retail giants Amazon.com Inc and Walmart Inc, is able to attract customers with its low prices and by creating a treasure hunt shopping experience that cannot be imitated online.

Shares of the Issaquah, Washington-based company were down about 1% in extended trading.

Daniel Martins, founder of independent research firm DM Martins Research, said Costco is better placed than most retailers in the United States.

“Costco stands to deal with the challenges better than most other retailers, given the company’s bargaining power and sourcing abilities that result from its large scale (and) size,” Martins said.

During the third quarter, Costco sold some big-ticket items like diamond repurchases, one in the $400,000 range, and items like golf simulators that sold for $14,000 each.

Excluding one-time items, Costco earned $1.89 per share in the third quarter ended May 12. Total revenue rose 7.4% to $34.74 billion.

Analysts, on average, had expected the company to post a profit of $1.82 per share on revenue of $34.71 billion.

Overall comparable-store sales, excluding the impact of fuel prices and currency changes, rose 5.6%, above analysts’ average estimate of a 5.48% rise.

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