Costco Wholesale Corporation
), one of the leading U.S. warehouse club operators, recently
posted sales data for the five-week period ended September 30, 2012
that betters analysts' expectations. Sales for the month were
favorably impacted by inflation in gasoline prices and foreign
After an ascension of 6% in August, Costco's
comparable-store sales for September climbed by an equivalent
percentage, reflecting comparable sales growth of 6% at its U.S.
locations and 7% at international outlets. In the prior-year
period, the company delivered comparable-store sales growth of
Costco's comparable-store sales for the fourth quarter of 2012
rose by 5% buoyed by a 6% and 2% jump in comparable-store sale in
the U.S. and international
Excluding the effects of gasoline prices and foreign currency
fluctuations, Costco's comparable-store sales for September
augmented 5% with U.S. and international comparable-sales elevating
5% and 6%, respectively. For the fourth quarter, the company
witnessed comparable-store sales growth of 6%, with U.S. sales
increasing by a similar rate and international sales rising 7%.
Total net sales for September jumped 8% to $9.31 billion from
$8.61 billion in the year-ago period. Costco's fourth quarter sales
soared 14% to $31.52 billion from $27.59 billion in the year-ago
Costco continues to be a dominant retail wholesaler based on the
breadth and quality of the merchandises it offers. The company's
strategy to sell products at heavily discounted prices has helped
it sustain growth amidst beleaguered economic conditions, as
cash-strapped customers continue to reckon Costco as a viable
option for low-cost necessities. Having delivered consistent
comparable-store sales growth, Costco is well positioned in the
warehouse club industry.
A differentiated product range enables Costco to provide an
upscale shopping experience to its members, resulting in market
share gains and higher sales per square foot. Moreover, the company
continues to maintain a healthy membership renewal rate. Costco
also remains committed to opening new clubs in domestic and
international markets. The company's diversification strategy is a
natural hedge against risks that may arise in specific markets.
However, Costco faces stiff competition from Sam's Club, a
Wal-Mart Stores Inc.
), which follows a similar business model that pushes through high
volumes of merchandise at low prices in membership-only warehouse
clubs. Thus, aggressive pricing to gain market share and drive
traffic amid stiff competition may depress sales and margins.
Costco expects to open 14 new warehouses before December 31,
2012. It currently operates 608 warehouses, comprising 439
warehouses in the United States and Puerto Rico, 82 in Canada, 32
in Mexico, 22 in the United Kingdom, 13 in Japan, 9 in Taiwan, 8 in
Korea and 3 in Australia.
The company is slated to release its fourth quarter and fiscal
2012 results on October 10. The current Zacks Consensus Estimate
for the quarter is $1.30 per share, which reflects a growth of
20.4% from the prior-year quarter's earnings. The Zacks Consensus
estimates revenue at $31,885 million for the quarter. The current
Zacks Consensus Estimate for fiscal 2012 is $3.86 per share.
Further, analysts polled by Zacks expect full year revenue to be
Going by the pulse of the economy, we believe that
budget-constrained consumers will remain watchful on their spending
and look for discounts. Consequently, we could see more competitive
pricing, compelling products and innovative ways to attract
Currently, we maintain our long-term "Neutral" recommendation on
the stock. However, Costco holds a Zacks #2 Rank that translates
into a short-term "Buy" rating.
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