Costco (NASDAQ:COST), the largest U.S. warehouse-club chain, announced that its May sales of US$8.98 billion dollars represent a 2% increase compared to the same period last year. Same-store sales were stable with an increase of 2% in the United States and a decrease of 4% internationally. On a comparable basis (excluding changes in exchange rates and oil prices), monthly sales overall are up 6% (+ 5% for the US and 8% internationally).
The results suggest that the next quarter will be better than the third quarter that ended on May 10, which saw lower comparable sales and lower-than-estimated sales than a year earlier, weakened by gasoline price deflation and a stronger dollar.
Costco investors are not used to such lukewarm numbers from Costco, a consistent and strong performer in the retail landscape for years and shares were trading 1.24 percent lower this afternoon despite the positive numbers.
Indeed, investors may be concerned by the subpoenas that the warehouse club retailer has received from the Drug Enforcement Administration concerning prescriptions for controlled substances and related practices. The U.S. Attorney's office has suspected the company to have violated civil regulations in its handling of several controlled substances.
In its May 28 quarterly filing, Costco said offices of the U.S. Attorney throughout the United States conveyed "their belief that the company has committed civil regulatory violations concerning these subjects." Costco made these disclosures in previous quarterly filings but yesterday chose to reiterate that it is cooperating with authorities.
The accusations against Costco have affected other retailers and they stem from warnings issued by federal authorities about prescription drug abuse and the role played by retailers through the distribution of painkillers.
Walgreen, the largest US drugs retailing chain had to pay US$80 million in 2013 to settle a court case after it was found guilty of failing to uphold its obligations as a registrant of the DEA. In September 2012, the DEA had accused Walgreen of jeopardizing public safety, banding the retailer from hipping oxycodone and other controlled drugs from its Jupiter, Florida distribution center because it had “failed to maintain proper controls to ensure it didn't dispense drugs to addicts and drug dealers”.
Walgreen’s competitor CVS was caught up in a similar violation last May such that it will pay US$22 to settle its accusations of mishandling prescription painkillers.
The company, which started in 1983, now has 673 membership warehouses around the world and boasts a loyal membership with a renewal rate of about 91% in the U.S. and Canada and about 87% worldwide as of 2014. Members can use their cards at any location around the world.