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Costco Does Well, Really Well

March 1, 2012Written by George Anderson

When former CEO Jim Sinegal announced he would retire on January 1, he and his successor, Craig Jelinek, made a point that very little would change. And if by that they meant continued strong financial results, they were right.

Costco beat Wall Street's expectations for the last quarter ending Feb. 12 as the appeal of cheap gas and high quality goods in bulk led to an increase in sales and profits for the warehouse club chain.

According to reports, Costco made the decision to hold the line on prices even as its costs went up. The gamble appears to have paid off as club member visits increased 5.2 percent during the period and dollars were up 2.4 percent per visit.

"Say a vendor raises costs by $1 a pound on those large packages of fresh salmon," Chuck Cerankosky, managing director at Northcoast Research, told The Seattle Times. "They might pass only 60 cents through [to consumers], but most of the market passed 90 cents or all of it through. They're judicious about how they time the increase. It's very, very much a daily part of running the business."

While the vast majority of Costco's sales happen inside its clubs, the company is also making significant investments in building up its e-commerce business. The chain reported a nine percent increase in online traffic for the most recent quarter.

According to a TechFlash report, Costco is working on a smartphone app to be released this summer. It is also upgrading its website.

"The new technology will give us greater visibility on the internet, and we hope will bring users to Costco.com via search engines, which our much older current system does not allow," Richard Galanti, chief financial officer of Costco, said on a conference call this week.

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