Costco Wholesale is gradually putting more chips overseas as it outgrows the U.S. market and green sprouts in a still shaky European economy present opportunities to the retail giant.
Fourteen of the 30 warehouses the Issaquah-based company plans to open during its fiscal 2014 are overseas, including two in Spain, the company’s first foray into continental Europe.
Costco has been increasingly lured by international markets, which can be highly profitable as health-care costs are generally lower than in the U.S. and the competitive landscape less challenging in some countries. But now the shift seems clearer than ever.
Five years ago between 75 percent and 80 percent of the company’s new stores were in the U.S., Chief Financial Officer Richard Galanti said in an earnings call with analysts Wednesday. Over the next three or four years, U.S. openings will account for as low as 40 percent, he added.
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So far Costco has focused mostly on Canada, Australia, Mexico, Japan and Korea, but “Europe has been on their radar screen for a while,” said Dan Geiman, an analyst with McAdams Wright Ragen.
The debt crisis and strong competition likely put a damper on its plans there, but the recovery in some countries means that it’s finally a good time to jump in, Geiman added. With “fewer opportunities domestically, they’re going to be looking internationally probably a bit more than they have,” Geiman said.
In Spain, Costco is betting that it will be a welcome relief for shoppers and workers as the country emerges from its worst economic slump in decades. “We provide good, high-paying jobs where we’re great competitors,” Galanti said, adding that Costco plans to enter the French market the following year; the company already has a sizable presence in the U.K., where it operates 25 stores.
Foreign operations bring their own set of challenges. Foreign currencies fluctuate vis-à-vis the U.S. dollar, adding a moving wheel that can throw Wall Street expectations off. Costco reported Wednesday that foreign-currency gyrations cost it two cents a share in earnings for the first quarter of its fiscal 2014, which ended late November. That contributed to an earnings miss versus analyst estimates.
The closure of a store in Acapulco, Mexico, because of a catastrophic tropical storm also weighed on the results. The company posted $425 million, or 96 cents a share in earnings, up from $416 million in the same period last year; analysts had forecast an average of $1.02 in net earnings per share for the quarter. Net sales rose to $24.47 billion from $23.20 billion last year. Membership fees generated $549 million in revenue, up from $511 million last year.
In addition to the two Spanish stores, Costco’s plans for fiscal 2014 include four new stores in Australia, three in Canada, one in Mexico, two in Korea and two in Japan. Its U.S. plans include 16 new stores. Costco opened 26 stores last year, Galanti said in the call.
As of Nov. 26, the company had 461 locations in the U.S. and Puerto Rico and 187 locations in other countries. About 31 percent of its 185,000 employees are abroad. In the first quarter, excluding foreign-currency effects, comparable sales for international stores grew 6 percent, outpacing the U.S., which grew at a 4 percent rate.
Costco is also cautiously testing another sales channel: same-day home delivery of Internet purchases, a realm dominated by Amazon. Last month it started a partnership with Google to deliver bulk items to homes in the San Francisco Bay Area, but so far it remains experimental.
“We’ll keep looking at it. We have no plans currently to deliver to homes,” Costco’s Galanti said. The Google partnership is “small. And it’s a test,” he said.
Ángel González; 206-464-2250 or firstname.lastname@example.org. On Twitter: @gonzalezseattle