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Costco sets up 1st greenhouse, plans to grow more produce itself

Produce from Costco Wholesale Corp.'s first greenhouse is headed for the company's stores, CFO Richard Galanti told analysts Dec. 12.

The greenhouse, located in California, could be the first of multiple operations for growing fresh produce, Galanti said during the company's first-quarter earnings call. Costco's as-reported EPS and net income beat analysts' expectations, but its comparable sales came in below the S&P Global Market Intelligence mean consensus estimate.

"We think there's some great opportunities on the produce side for hot house and greenhouses ... particularly ... where transportation costs and time is a necessity on stuff that spoils quickly and easily," the CFO said.

Hawaii, where Costco has several stores, represents one such opportunity, Galanti said. Currently, most of the fresh produce sold in those locations arrive by air. A state agribusiness official in Hawaii told TV station KHON2 in February that Costco had expressed interest in raising produce in-state.

"If you can do some more of that over there, that's a no-brainer," Galanti told analysts Dec. 12.

Costco has long run facilities that distribute perishable foods, such as ground beef and baked goods, to its stores. But the Issaquah, Wash.-based retailer has looked to vertically integrate more of its food supply chain in recent quarters, even investing in its own chicken processing plant in Nebraska.

The retailer is also jumping into prescription drug delivery and adding more self-checkout kiosks to its stores. Galanti confirmed that Costco has started delivering prescriptions to customers through third-party service Instacart. He also said the retailer now delivers alcohol through Instacart in 12 states.

Costco plans to add self-checkout lanes to 92 locations in the U.S. and Canada in 2020, adding to the 135 it already has.

Costco has also bolstered its delivery and checkout options as it competes with Walmart Inc.'s Sam's Club. While competitors have also built operations that allow customers to buy items online and pick them up in a store, Galanti said the option does not make sense for Costco even though the chain's stores have higher sales volumes than competitors' stores.

"We continue to look at what others do and continue to scratch our head," he said. "We're not at a point that we're planning to do anything with that."

Shares of Costco were 0.8% lower at $294.88 in after-hours trading on Dec. 12.