🍕Costco's once-in-a-decade sales drop

Friday, May 8, 2020 by Robinhood Snacks |
_Secured the last Costco pizza before the Food Court shut down_

Secured the last Costco pizza before the Food Court shut down

Yesterday’s Market Moves
Dow Jones
23,876 (+0.89%)
S&P 500
2,881 (+1.15%)
Nasdaq
8,980 (+1.41%)
Bitcoin
$9,831 (+6.16%)
10-Yr US Treasury
0.641%

Hey Snackers,

Tom Cruise may be taking social distancing guidelines to a whole new level: Cruise will be working with NASA (and possibly SpaceX) to shoot a movie in (you guessed it) space — our suggested title: "Born on the Fourth of Jupiter's Rings."

The tech-focused Nasdaq made up all its 2020 losses and closed positive for the year, rising on the backs of Amazon, Apple, Alphabet, and Facebook.

Ride

Turn up the resistance... Lockdown orders have caused the number of crunches and mountain climbers done on living room floors to skyrocket. But since there are no Push-Up Mutual Funds or Burpee ETFs, we're looking at Peloton. The spin bike company's shares soared 16% Thursday to a record high as demand for its at-home fitness product exploded:

  • Sales up +66%: Its $2.2K spin bikes and $4.3K treadmills rode off shelves — and then you pay $39/month to stream classes. A shocking 176K are subscribed to the app without Peloton hardware (aka, DIY Peloton bike on iPad — or one of its other workouts).
  • But, a loss: Peloton boosted its sales forecast for the year on all those endorphins, but still posted a $56M loss last quarter.

SoulCycle addicts have withdrawal... The corona-conomy brought Peloton new types of customers who wouldn't have considered buying before the pandemic. People who usually work out at studios or in group classes through their gym memberships caved under cabin fever:

  • +94%: Paid subscribers nearly 2X'd since last year to 886K. A record 23K people streamed Peloton's largest class ever.
  • 44M: Peloton logged a record-shattering 44M workouts in the quarter (490K workouts per day on average), up from 24M in the December quarter.
THE TAKEAWAY

Investors predicted this success... Peloton shares more than doubled in the past 1.5 months because investors eyed critical leading indicators. Lagging indicators (like Peloton's earnings report) tell us the result from the past, while leading indicators are more forward-looking. Take Peloton's 7-9 day normal shipping time — it increased to over a month, indicating surging demand, which translates to future sales boosts.

Shop

No more unlimited free samples... You know, because... germs. Maybe that's why Costco's sales fell for the first time since July 2009. The Disneyland of bulk retail, Costco represents more than just a store to be shopped — it's an experience to be lived. Let's re-live the past three months:

  • February sales jumped 12%: 'Twas the beginning of the lockdown panic — shoppers flocked to Costco for boatloads of food and cleaning supplies, flashing membership cards like pandemic status symbols.
  • March sales spiked 10%: People who didn't panic hoard in Feb started panic hoarding — the Feb panic hoarders had to restock Kirkland bacon. Also, TP panic took hold.
  • April sales fell 5%: Thanks to strict stay-at-home orders and scaled back service in areas like the Costco food court (no more deliciously greasy pizza and impossibly long churros). But one item really hurt April's numbers...

Blame the gas... Gas sales make up 11% of Costco's revenue. Too bad oil prices took a violent nosedive in April, even going negative at one point. On top of that plunge, Costco members were driving way less (and not filling the old tank as much). Costco blamed 70% of its April sales drop on low gas prices/demand.

THE TAKEAWAY

Costco is about to face the budget question... In a recession, one of the first places people look to cut is fixed costs (like streaming subscriptions or cable). Unlike other retailers, Costco has subscription memberships (starting at $60/year) — in 2019 Costco had a ridiculously high 91% renewal rate. TBD if a corona recession will help or hurt that.

Play

Miss the old Game Boy Advance... But Nintendo doesn't crush sales by getting nostalgic over an old console that flips closed like a mini laptop. Fun fact: Nintendo was founded as a playing card company back in 1889 — over a century later, the Japanese gaming giant still appears to be playing its cards right:

  • Annual profit soared 41% from a year ago to $3.3B, Nintendo's biggest surge in nine years.
  • Nintendo Switch sales jumped 34% compared to a year ago — it even recently sold out on several websites, despite the fact that it was released in 2017 (and is suffering production delays).
  • Nintendo's Animal Crossing: New Horizons game became the fastest selling title ever on Switch. Apparently lots of people wish they were on some colorful, animal-filled, pandemic-free island somewhere.

Good software drives hardware surges.... The hit success of Animal Crossing drove demand for Nintendo's Switch, which has been out for almost four years. For Nintendo, content is key to spurring sales of its console hardware. And Nintendo hit a goldmine with Animal Crossing — people are so into it that they're hiring interior designers for their island decor.

THE TAKEAWAY

TBD whether the creative hits will continue... The surge in Switch sales was driven largely by Animal Crossing's success, but Nintendo reportedly doesn't have many new games in its pipeline. Nintendo even said it's predicting a fall in software sales this year because game developers can't come to the office. And unlike the other game consoles (Playstation and Xbox), Nintendo designs most of its own games (85% of them).

What else we’re Snackin’

  • Lost: Uber posts a quarterly net loss of $2.9B, its biggest L in three quarters.
  • Bagged: Luxury retailer Neiman Marcus files for bankruptcy, after being forced to close 43 of its US stores — Neiman still plans to reopen its stores when the lockdowns end.
  • Swiped: Mobile payments company Square reported a $106M loss because its payment dongles depend on small biz, but its consumer business (CashApp) saw strong growth.
  • Cancelled: Alphabet subsidiary Sidewalk Labs is ditching plans to build a high-tech "smart city" on Toronto's waterfront after pushback from local residents.
  • Beat: ViacomCBS' streaming sales jumped 51% over the year — the media giant just announced a deal adding 14 more Viacom channels to YouTube TV.

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Friday

  • The official Jobs Report for April

Disclosure: Authors of this Snacks own shares of Sony and Amazon

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