Costco Wholesale Corporation
), one of the leading U.S. warehouse club operators, recently
posted sales data for the four-week period ended July 29, 2012.
However, unfavorable foreign currencies fluctuation remained a
drag. Moreover, sales for the month were adversely impacted by
deflation in gasoline prices.
After a 3% increase in June, Costco's comparable-store
sales for July climbed 5%, reflecting comparable sales growth of 7%
at its U.S. locations. Comps at international outlets remained
flat. In the prior-year period, the company delivered
comparable-store sales growth of
For the 48-week period ended July 29, 2012, the company
registered comparable-store sales growth of 7%, with U.S. sales
rising by an equivalent percentage and international sales climbing
Excluding the effects of gasoline prices and foreign currency
fluctuations, Costco's comparable-store sales for July climbed 7%,
with U.S. and international comparable sales increasing 8% and 7%,
respectively. For the 48-week period, the company registered
comparable-store sales growth of 6%, with U.S. sales rising 6% and
international sales climbing 9%.
Total net sales for July jumped 8% to $7.25 billion from $6.74
billion in the prior-year period. For the 48-week period, sales
increased 9% to $87.71 billion from $80.18 billion in the same
period last year.
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 to sustain growth amid beleaguered economic conditions, as
cash-strapped customers continue to see 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
maintains a healthy membership renewal rate.
It 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
) and Sam's Club, a division of
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 dampen sales and margins.
Costco currently operates 605 warehouses, which include 438 in
the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22
in the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea and 3
in Australia. The company intends to open three new warehouses
before the end of fiscal 2012 on September 2, 2012.
Going by the pulse of the economy, we believe that
budget-constrained consumers will remain prudent regarding their
spending and look for discounts. Consequently, we could witness
more competitive pricing, compelling products and innovative ways
to attract shoppers.
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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