Dive Brief:

• Costco Wholesale is lowering some prices as inflation in the company’s fiscal second quarter ended Feb. 18 was “essentially flat” year-over-year, down from zero to 1% in the first quarter, CFO Richard Galanti said. Galanti hosted his final earnings call Thursday ahead of his successor Gary Millerchip taking the finance helm next week. 
• “We’re taking price reductions where we can. Anecdotally, everything from simple items like reading glasses from $18.99 to $16.99, the 48-count of Kirkland Signature batteries from $17.99 to $15.99, a 24-count of Pellegrino from $16.99 to $14.99, and even a four pounds of frozen three-berry fruit blend from $14.99 down to $10.99,” he said, noting the lower pricing on certain items was mostly due to lower freight and commodity costs compared to a year ago.
• The Issaquah, Washington-based club retailer’s shares fell 7.6% to close at about $725 Friday after it reported fiscal second quarter revenue of $58.44 billion, up from $55.26 billion in the year earlier, but below the $59.1 billion that was expected, according to CNBC. During the call Galanti also noted that “gasoline price deflation” negatively impacted total reported comp sales by about 0.5% and noted that he left the decision on when to execute a membership price increase to be taken up on Millerchip’s “watch.”

Dive Insight:

The flat inflation seen in Costco’s latest quarter is a marked change. Galanti noted in the call that inflation hit 7%, 8% and 9% a couple years ago. The signal of flattening also comes as Fed Chair Jerome Powell this week underscored the costs from high inflation that policymakers have been monitoring, CFO Dive previously reported.

The Fed “remains highly attentive to inflation risks and is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials, like food, housing and transportation,” Powell said.

Morningstar analyst Noah Rohr said he thought the company had a “strong quarter” and said the revenue miss might be more of a timing issue given Costco only opened four new warehouses during the quarter. 

“I didn’t think there was much to nitpick regarding the company’s results, but investors’ expectations were very high coming in,” Rohr wrote in an emailed response to questions. “When expectations are very high, a slight miss on any metric can cause a stock to move lower, and I think that’s what we’re seeing with Costco today. But overall, we were encouraged by Costco’s second quarter results.”

The call was full of Galanti’s regular discussions of details and trends. Its businesslike tone gave way at times to some more personal moments as analysts, before asking a question, one by one congratulated Galanti on his retirement, at times thanking him for his help over the years or wishing him well in his next chapter. 

“Hey, Richard, I feel like we should be, like, raising your jersey to the rafters like a superstar is retiring here,” Scott Mushkin, an analyst with R5 Capital, said on the call.

For his part Galanti, 67,  gave something of a masterclass on a graceful executive exit as he prepares to retire after logging 40 years at the company. “It’s a bit surreal of late,” he said. “But what a wonderful journey it has been with such a great company and great people, including many of you on the call today. I have certainly been very fortunate.”

Then he paved the way for his successor. “The good news [is] Gary joined Costco last week and…will continue to provide you all with the transparency and straightforwardness that we are known for,” he said. “It will be a positive and seamless transition.”