Dive Brief:
- Costco Wholesale has a plan to deal with expected tariffs despite “a lot of uncertainty around the timing and scope of the changes” which make it difficult to predict the impact, CFO Gary Millerchip said on a fiscal Q1 earnings call.
- As part of its plan, the Issaquah, Washington-based warehouse club retailer will look to pull forward inventory buying, something it’s done already because of uncertainty around shipping times and strike risks it’s seen, Millerchip said. In addition, he said the company would work with vendors to mitigate cost, consider alternative sources of goods, and consider choosing different SKUs or products.
- In general, he said tariffs raise costs and are not something the company sees “as a positive,” but he noted that any headwinds from them affect competitors similarly. “I'll quote my predecessor, Richard [Galanti]. He'd say, ‘when it rains, it rains on everybody.’ And I think for us, we faced tariffs in the past, and we believe that our merchants and buyers are equipped, as anybody is, to sort of work through and navigate and manage that situation,” he said. Millerchip took the finance reins from Galanti, Costco’s long-time CFO, in March.
Dive Insight:
Costco is one of many companies grappling with the potential impact of anticipated tariffs since the U.S. presidential election. During his campaign, President-elect Donald Trump promised to impose a baseline 10% to 20% tariff on all U.S. imports, as well as a 60% tariff on those from China.
Several studies have indicated that the benefits of such tariffs would fall well below the costs to U.S. households and economic growth. The Tax Policy Center estimated such tariffs would reduce imports by $9 trillion over 10 years, CFO Dive previously reported.
While planning to mitigate any impact on Costco, Millerchip said that a “minority” of its overall business that is imported would be affected by import taxes. For example, he said a quarter of the company’s business is “non-foods” with a subset of that being imported.
Separately during the call, Millerchip also weighed in on shopping trends, noting that the demand for goods still seems bifurcated in terms of price preferences, with some Costco shoppers gravitating to lower priced chicken, beef cuts and pork at the same time that high-quality premium meat cuts are also selling well. At the same time, he said the company is seeing a shift from “food away from home to food at home” which he said is reflected in the company’s strong meat and produce sales.
With average annual inflation for food away from home — typically a term used for restaurants — running about 4% compared to home food inflation landing closer to 1%, the move toward more spending on food to be eaten in the home “could be suggestive of consumers being more price conscious,” Noah Rohr, an equity analyst at Morningstar who follows Costco, said in an email.
Costco CEO Ron Vachris also seemed to suggest on the call that consumer trends are reflecting pragmatic preferences. “It seems to be a very foundational Christmas,” Vachris said, noting that furniture is driving a lot of the company’s e-commerce sales. “People are very, very basic buying this year, but good trends.”
