One more sign that things are slowly returning to normalcy as vaccines roll out: Costco Wholesale Corp.’s popular food sampling is making a comeback.
Paused last March due to the coronavirus pandemic, Costco
tried different ways to have sampling events in the time since as health guidelines allowed, for instance, offering single-serve cookies or crackers and no cooked items.
But with restrictions easing, the warehouse retailer says the sampling events that members are used to will be an option once again.
“I’m happy to report that over the next couple of weeks, we’re beginning a phased return to full sampling,” said Richard Galanti, chief executive of Costco, on the company’s late Thursday earnings call, according to a FactSet transcript.
About 170 of the company’s 550 U.S. locations will see sampling return during the first week of June with others returning through the end of the month, depending on state-by-state restrictions. Safety protocols like plexiglass dividers and small-batch preparation for closer monitoring will be in place.
Food court dining is also returning, with seating and tables back by June 7. Costco began moving tables back into warehouse locations a few weeks ago. Customers will find more space between tables and smaller seating capacity due to COVID.
The pandemic also drove a paring down of the food court menu. The company has been bringing back items, with “new and improved” churros available nationwide by July 4 and “high-end” soft ice cream replacing frozen yogurt.
Costco customers may want to load up on those free samples given the impact that inflation and supply chain pressures are having on some items.
“From a supply chain perspective, port delays are continuing to have an impact,” Galanti said.
The company reports a shortage of pallets and containers, causing delays at a time of pent-up consumer demand. Increased freight and transportation costs, and a scarcity of items like oils and chemicals, among other hurdles, are also weighing.
All of these factors are translating into higher prices at the cash register.
“Beef in the last month has been up as much as 20%,” Galanti said.
“Some of that is due to feed and labor and transportation costs,’ he said. There is also greater demand as restaurants start to reopen, “and the list could go on and on.”
Costco reported fiscal third-quarter earnings and sales that beat expectations.
“Overall, the narrative on Costco remains unchanged, in our view,” wrote Raymond James analysts led by Bobby Griffin. “Costco’s product mix (food/consumables
and discretionary goods), clean balance sheet and sticky customer base (~91% U.S. renewal rate; millennial growth) position it well to continue to benefit in a COVID-19 recovery.”
Raymond James rates Costco stock as outperform and raised its price target to $415 from $410.
“Looking ahead, we think Costco should benefit from a resurgence in demand for ancillary services such as travel,” wrote UBS analysts led by Michael Lasser.
“Further, we think it has an opportunity to take even more market share if inflation persists (it can work with vendors to cut costs & has shown a willingness to eat margin to preserve its value proposition).”
UBS rates Costco stock a buy with a $430 price target.
In addition to what’s happening in its retail locations, analysts also note the improvements coming to e-commerce, with sales up 38.2% for the quarter, excluding the impact of fuel and foreign exchange.
Costco has lapped its $1 billion Innovel acquisition, which is now called Costco Logistics, and has seen the sale of mattresses, grills and other big and bulky items in the U.S. improve 53% over the most recent quarter. Delivery times have also improved to five-to-seven days, in some cases, from up to two weeks.
“As the COVID impact subsides, we anticipate the company will return to investing in price, while continuing its digital/e-commerce focus, both serving to reinforce the value proposition, which we view as key to sustaining favorable comp and traffic trends and continued outperformance relative to peers,” wrote Stifel in a note.
Stifel rates Costco shares a buy and raised its price target to $410 from $390.
Costco stock fell 2.1% in Friday trading, but has edged up 0.7% for the year to date. The benchmark S&P 500 index
has gained 12.2% for 2021 to date.