Costco on Wednesday reported that U.S. Q2 same-store sales rose 4%, taking away the effects of lower fuel prices and the strong dollar, missing analyst estimates reported by Bloomberg of a 4.9% increase. Overall Q2 same-store sales by that measure rose 5%. Considering those effects, same-store sales rose just 1%. The company’s 36 Mexican stores were hit by the strong dollar, as were stores in Canada, according to the report.
Q2 net income fell 8.7% to $546 million, or $1.24 per share, missing analyst expectations reported by Bloomberg of $1.28 per share, on average. Q2 revenue was $28.2 billion, up 2.6% year over year.
By design, Costco makes much of its money from its $55 per-year membership fee, which, like Amazon’s Prime program, tends to bring in wealthier shoppers than rival Wal-Mart, which attracts more lower-income shoppers on average.
Bloomberg notes that wealthier shoppers—a demographic that Wal-Mart in particular has said it’s gunning for through its new store and digital strategies—are spending less in light of damage done by the volatile stock market. It’s something of a twist, as many retailers catering to middle- and lower-income shoppers have struggled to avoid discounts and boost sales as wages have stagnated, despite an improving economy and lower unemployment.
The misses are also tempered by the fact that adjusted same-store sales grew 8% in Q2 a year ago, though of course that’s what helps set high expectations for Costco.
“The abrupt and sharp deceleration in comp sales is of deep concern broadly and is likely a bad omen for staples retail generally,” Scott Mushkin, an analyst with Wolfe Research, wrote in a note to clients earlier this month after Costco reported January sales were below expectations, Bloomberg reports.
That point is important, considering that the headwinds hitting Costco are likely to also impede its rivals.
On a more positive note, Costco's credit card switch from American Express to Citigroup store-branded cards is a short-term cost that will drop off, and could be a net win as its fees fall with the new deal. The dollar’s strength will also eventually become a non-issue.