If grocery sales made via Instacart were included, Costco's online sales increase would have exceeded 100%, the warehouse club retailer's chief financial officer says.

As the COVID-19 crisis continues, Costco Wholesale Corp. (No. 16 in the 2020 Digital Commerce 360 Top 1000) continues to see substantial online sales growth. That includes what Richard Galanti, Costco’s chief financial officer, called “an incredible rate” of growth in online grocery sales.

Costco reported online sales grew 64.5% year over year for the third quarter of fiscal 2020, which ended May 10. When adjusted for changes in gasoline prices and foreign currency exchange rates, online sales were up 66.1% compared with the same quarter in 2019. Costco did not break out specific online sales figures.

“Total online grocery grew at an incredible rate during the third quarter, as I am sure did at many places,” Galanti said during a May 28 conference call with analysts, according to a Seeking Alpha transcript.

Online growth close to 100%

Costco’s reported increase in online grocery sales excludes Costco’s third-party or same-day grocery program via the delivery service Instacart. If Costco included the Instacart sales in its online growth, the increase in overall online sales increase “would be slightly over 100%,” Galanti said during the call.

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Costco is riding a wave of increased online grocery sales since the start of the COVID-19 crisis. Primarily due to the pandemic, those online grocery sales set new records in March, April and May.

Online grocery sales reaches $6.6 billion

In May, U.S. online grocery sales reached a record $6.6 billion, according to a survey fielded May 20 through May 22 by grocery ecommerce consulting firm Brick Meets Click and grocery ecommerce platform Mercatus. That was an increase of 24.5% the previous record: the $5.3 billion in online grocery sales a month earlier.

“COVID-19 has accelerated online grocery adoption at a rate the industry hadn’t expected to see for years,” said Sylvain Perrier, president and CEO, Mercatus. “The online surge may level off slightly as various states strive to return to ‘normal.’ However, what has changed in shoppers’ eyes is the realization of the immediate benefits of online grocery shopping.”

Online sales didn’t save the quarter

Costco’s earnings for the quarter were weighed down by about $283 million in costs related to the response to the coronavirus pandemic. “These are the costs for incremental wages, safety and sanitation costs allocated to our cost departments and merchandise fulfillment operations,” Galanti said during the conference call. He said the spending included $32 million for things like masks, gloves incremental cleaning supplies and plexiglass partitions at checkouts.

In a note to investors, stock analysts at investment firm Oppenheimer & Co. Inc. called Costco’s third-quarter results “modestly shy of Street forecasts but well ahead of our expectations.”

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“We expect a gradual profit recovery at [Costco] over time as COVID-19 expense pressures dissipate and stay at home restrictions go away,” the note says.

Costco expects expenses related to COVID-19 to exceed $100 million in its fiscal fourth quarter but should be “quite a bit lower” than the $283 million spent in the third quarter, Galanti said during the call.

For the quarter and 36-week periods ended May 10, Costco reported:

  • Total revenue of $37.266 billion for the quarter, up 7.3% from $34.740 billion for the comparable quarter a year earlier.
  • Net income of $838.0 million for the quarter, down 7.5% from $906.0 million a year earlier.
  • Total revenue of $113.378 billion for the 36 weeks ended May 10, up 7.8% from $105.205 billion for the same period in 2019.
  • Net income of $2.613 billion for the 36 weeks up just under 2% compared with $2.562 billion for the same period in 2019.
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