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