Costco Sales Rise - Analyst Blog


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Costco Wholesale Corporation ( COST ), one of the leading U.S. warehouse club operators, recently posted sales data for the four-week period ended April 29, 2012.

Sales climbed on the back of higher gasoline prices but fell short of analysts expectations as unfavorable foreign currencies fluctuation remained a drag.

After a 6% increase in March, Costco's comparable-store sales for the month of April climbed 4%, reflecting comparable sales growth of 4% at its U.S. locations and 3% at its international divisions. In the prior-year period, the company delivered comparable-store sales growth of 11%.

For the 35-week period ended April 29, 2012, the company registered comparable-store sales growth of 8%, with U.S. and international sales also rising by the same percentage.

Excluding the effects of higher gasoline prices and foreign currencies fluctuation, Costco's comparable-store sales for April climbed 5%, with U.S. and international comparable sales increasing 4% and 7%, respectively. For the 35-week period, the company registered comparable-store sales growth of 7%, with U.S. sales rising 6% and international sales climbing 9%.

Total net sales for April jumped 7% to $7.25 billion from $6.80 billion in the same month last year. For the 35-week period, sales increased 10% to $63.59 billion from $57.59 billion in the same period last year.

Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandises it offers. The company's strategy to sell products at heavily discounted prices has helped it to 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 strongly positioned in the warehouse club industry.

However, Costco faces stiff competition from Target Corporation ( TGT ) and Sam's Club, a division of Wal-Mart Stores Inc. ( WMT ), 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 currently operates 602 warehouses, which include 435 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 plans to open 7 more new warehouses during the remainder of fiscal 2012.

Going by the pulse of the economy, we believe that budget-constrained consumers will remain watchful on their spending and look for discounts. Consequently, the company could see more competitive pricing, compelling products and innovative ways to attract shoppers.

Given the pros and cons, we maintain our long-term "Neutral" recommendation on the stock. However, Costco holds a Zacks #4 Rank that translates into a short-term "Sell" rating.

COSTCO WHOLE CP (COST): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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