Dive Brief:
Costco Wholesale’s tariff mitigation strategies have included pulling forward purchases of sporting goods and summer-related items ahead of the levies, rerouting goods sourced from countries with “large tariff exposure,” and buying more of its store brand Kirkland Signature product in countries or regions where the items are sold, executives said on the company’s earnings call Thursday.
In its fiscal Q3 ended May 11, the warehouse club retailer’s CFO Gary Millerchip said tariff-driven inflation hit certain fresh goods from Central and South America, with the company making a decision to potentially take a margin hit on some affected “staple” items like bananas, but not on a less essential product like flowers.
“So, on pineapples and bananas…we felt it was important to really eliminate the impact there for the member by working with our suppliers and by us finding efficiencies and accepting that there may be a margin impact, we essentially held the price on those to make sure that we’re protecting the member,” Millerchip said, according to a transcript of the call. By contrast, on flowers from the region, he said “we felt that that was something that the member would be able to absorb and it was a more discretionary item there.”
Dive Insight:
The Issaquah, Washington-based company reported net income for the quarter of $1.9 billion, compared to $1.68 billion for the year-earlier period, while net sales for Q3 rose 8% to $61.96 billion.
CEO Ron Vachris noted the company has undertaken a “strategic movement of goods” and capitalized on its limited SKU count and global footprint to deliver strong financial results and competitive prices despite the challenging macroeconomic backdrop.
“We’re remaining agile as a situation with tariffs evolves, while also supporting the commitments we’ve made with our long-term suppliers. As an example of this, during the third quarter, we rerouted many goods sourced from countries with large tariff exposure to our non-U.S. markets,” Vachris said.
The call came toward the end of another rollercoaster week on the U.S. policy front. On Wednesday, a federal court blocked many of President Donald Trump’s sweeping tariff executive orders saying the president had overstepped his use of emergency powers to enact them. A subsequent Thursday order from the U.S. Court of Appeals for the Federal Circuit paused the ruling.
Asked by an analyst whether the company expects some vendors might reduce tariff-induced price increases if some of the levies are rolled back, Millerchip said it was difficult to predict what would happen given the dynamic environment they were operating in.
“I think all of our suppliers are staying agile. And really, the focus is on how do we react to the moment and make sure that we’re there for our members in managing price of the products and continuing to find the most relevant items to the members,” Millerchip said.
The company lowered prices on some key items such as eggs, butter and olive oil, and Millerchip said that expanded gas station hours, new gas station openings and lower gas prices led to Costco having two of its all-time “highest gallon weeks” in the U.S. last month.