Costco Wholesale Corporation
), a leading U.S. warehouse club operator, recently posted sales
data for the four-week period ended May 27, 2012. However, sales
fell short of analysts' expectations as unfavorable foreign
currencies fluctuation remained a drag. Moreover, sales for the
month were also adversely affected by deflation in gasoline
The company will sustain its sales momentum as it moves further
into 2012. After a 4% increase in April, Costco's
comparable-store sales for the month of May climbed by a similar
percentage, reflecting comparable sales growth of 5% at its U.S.
locations and 3% at its international divisions. In the prior-year
period, the company delivered comparable-store sales growth of
For the 39-week period ended May 27, 2012, the company
registered comparable-store sales growth of 7%, with U.S. and
international sales also rising by an equivalent percentage.
Excluding the effects of gasoline prices and foreign currencies
fluctuation, Costco's comparable-store sales for May climbed 6%,
with U.S. and international comparable sales increasing 5% and 8%,
respectively. For the 39-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 May jumped 7% to $7.67 billion from $7.14
billion in the same month last year. For the 39-week period, sales
increased 10% to $71.28 billion from $64.75 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 well positioned in the
warehouse club industry.
Consumers seeking discounts started flocking to warehouse clubs,
leading to improved sales of discretionary items. Consequently,
Costco witnessed high single-digit growth in the top line during
the third quarter of 2012, which subsequently led to an increase in
the bottom line.
Costco's third quarter earnings of 88 cents a share beat the
Zacks Consensus Estimate by a penny, and increased 20.5% from 73
cents earned in the prior-year period. Total revenue, which
includes net sales and membership fee, climbed 8.2% to $22,324
million from the prior-year quarter, and handily surpassed the
Zacks Consensus Estimate of $22,072 million.
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 Statesand 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 6 more new warehouses during
the remainder of fiscal
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
Given the pros and cons, we maintain our long-term Neutral
recommendation on the stock. However, Costco holds a Zacks #3 Rank
that translates into a short-term Hold rating.
COSTCO WHOLE CP (COST): Free Stock Analysis
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