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Costco’s Solid November Comps Heralds Blissful Holidays

Zacks

Amid a tough retail landscape Costco Wholesale Corp. COST continued with its solid comparable-store sales (comps) trend in the month of November as well. While major chains are grappling with sluggish store and mall traffic as consumers switch to online shopping, Costco seems somewhat resilient to the challenging retail backdrop.

Improving labor market, rising disposable income and elevated consumer sentiment have ushered confidence in the operator of membership warehouses, while impressive November sales heralds a blissful holiday season ahead. As a result, the stock has increase roughly 4.3% since Nov 29, 2017, when the company announced sales results.

Shares of Costco have outpaced the Zacks Retail-Discount Industry in a year gaining from sturdy comps performance. In a year, this Zacks Rank #3 (Hold) stock has advanced 22%, while the industry, which occupies a space in the top 20% (50 out of 256) among the Zacks classified industries, has gained 6.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Sturdy Comps Performance

Comps for four-week ended Nov 26, 2017 increased 10.8%, following an increase of 7.5% in October, 8.9% in September, 7.3% in August, 6.2% in July, 6% in June, 4.1% in May, 3% in April, 6% in March, 4% in February and 7% in January.

The company generated net sales of $11.26 billion in November, up 13.2% year over year. Notably, net sales increased 10.1%, 12.1%, 10%, 8.8%, 7%, 7%, 5%, 9%, 8% and 9% in October, September, August, July, June, May, April, March, February and January, respectively. Comparable e-commerce sales for the month under review surged 39%.

Comps for November reflect an increase of 10.2%, 13.8% and 11.1% at the United States, Canada and Other International locations, respectively. Excluding the impact of foreign currency fluctuations and gasoline prices, Costco’s comps for the month under review rose 7.9%. The company recorded comps increase of 8.4%, 6.3% and 7.2% at the United States, Canada and Other International locations.

For the 12-week period, Costco reported 10.5% jump in comps, displaying an increase of 10.3%, 11.3% and 10.1% at the United States, Canada and Other International locations. Net sales for the period came in at $31.13 billion, an increase of 13.3% from the year-ago period.

Wrapping Up

We believe that Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. The company’s strategy to sell products at heavily discounted prices has helped it to remain on growth track as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. It is also gradually expanding e-commerce capabilities in the United States, Canada, U.K., Mexico, Korea and Taiwan.

We believe that the hike in annual membership fees and increased penetration of Citi Visa co-brand card program will benefit the stock. We are also encouraged by Costco’s expansion strategy, as it remains committed to opening new clubs and expanding e-commerce capabilities.

Costco, which competes with Wal-Mart Stores, Inc. WMT, operates 746 warehouses, comprising 518 warehouses in the United States and Puerto Rico, 98 in Canada, 37 in Mexico, 28 in UK, 26 in Japan, 13 in Korea, 13 in Taiwan, nine in Australia, two in Spain, one in Iceland and one in France.

Apart from Costco, L Brands, Inc. LB and Zumiez Inc. ZUMZ came out with comparable sales results for the month of November. Comps for L Brands declined 1%, while for Zumiez the same increased 7.8%.

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