Costco Wholesale Corporation
(
COST
), one of the leading U.S. warehouse club operators, recently
posted sales data for the five-week period ended July 1, 2012.
However, sales fell short of analysts' expectations as unfavorable
foreign currency fluctuations remained a drag. Moreover, sales for
the month were also marginally impacted by deflation in gasoline
prices.
After a 4% increase in May, Costco's comparable-store sales
for June climbed 3%, reflecting comparable sales growth of 3% at
its U.S. locations and 2% at its international divisions. In the
prior-year period, the company delivered comparable-store sales
growth of 14%.
For the 44-week period ended July 1, 2012, the company
registered comparable-store sales growth of 7%, with U.S. and
international sales also rising by the same percentage.
Excluding the effects of gasoline prices and foreign currency
fluctuations, Costco's comparable-store sales for June climbed 5%,
with U.S. and international comparable sales increasing 3% and 8%,
respectively. For the 44-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 June jumped 6% to $9.18 billion from $8.69
billion in the same month last year. For the 44-week period, sales
increased 10% to $80.46 billion from $73.44 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 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 open 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
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 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.
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
shoppers.
Currently, 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
Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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