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Costco (COST) Continues with Healthy Comps Performance

Zacks

Amid a tough retail landscape Costco Wholesale Corporation COST continued with its solid comparable sales (comps) trend in the month of January 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. However, shares of Costco did come under pressure after the news of Whole Foods buyout by Amazon AMZN surfaced. Moreover, analysts fear that aggressive investments by Walmart WMT and Target TGT to boost their digital operations may hurt Costco’s market share.

We noted that shares of Costco have underperformed the Zacks Retail-Discount Industry in a year. This Zacks Rank #3 (Hold) stock has advanced 5.1%, while the industry, which occupies a space in the top 13% (33 out of 256) among the Zacks classified industries, has grown 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

How Have Comps Fared?

Comps for five-weeks ended Feb 4, 2018 increased 6%, following an increase of 11.5% in December, 10.8% in November, 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 $12.24 billion in January, up 8.4% year over year. Notably, net sales increased 14.3%, 13.2%, 10.1%, 12.1%, 10%, 8.8%, 7%, 7%, 5%, 9%, 8% and 9% in December, November, October, September, August, July, June, May, April, March, February and January, respectively. Comparable e-commerce sales for the month under review surged 34.8%.

Why Sales Growth Rate Decelerate in January?


We note that although comps and sales have increased in the month of January, growth rates have decelerated from preceding months.

Management pointed that one less shopping day in January versus last year on account of the calendar shift of New Year’s Day hurt both total sales and comps by approximately 3%. Moreover, with Chinese New Year falling in February this year, total sales and Other International sales were adversely impacted by 0.5% and 3.5%, respectively.

Comps for January reflect an increase of 4.9%, 8.3% and 9.8% 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 2.9%. The company recorded comps increase of 3.6%, 1.3% and 0.6% at the United States, Canada and Other International locations, respectively.

For the 22-week period, Costco reported 8.8% jump in comps, displaying an increase of 8.2%, 10% and 11.2% at the United States, Canada and Other International locations. Net sales for the period came in at $58.30 billion, an increase of 11.6% 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. We are also encouraged by the company’s expansion strategy, as it remains committed to opening new clubs and expanding e-commerce capabilities.

It 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. It is also gradually expanding e-commerce capabilities in the United States, Canada, UK, Mexico, Korea and Taiwan.

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