We reaffirm our long-term Neutral recommendation on
Costco Wholesale Corporation
), following the company's second-quarter fiscal 2013
Why the Reiteration?
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 maintain positive growth amid the beleaguered economic
conditions as budget-conscious customers continue to see it as a
viable option for low-cost necessities.
Having delivered comparable-store sales growth consistently,
Costco is well positioned in the warehouse club industry.
Costco recently came out with its second-quarter fiscal 2013
results. The quarterly earnings of $1.10 per share beat the Zacks
Consensus Estimate of $1.05, and surged 22.2% from 90 cents
earned in the prior-year period.
The bottom-line improvement was buoyed by growth in the
top-line due to a rise in membership fees and improved sales of
discretionary items, as consumers seeking discounts started
flocking to warehouse clubs.
This Zacks Rank #2 (Buy) stock has outpaced the Zacks
Consensus Estimates in the last three consecutive quarters, and
has beat the Estimates in the last 4 quarters by an average of
The warehouse retailer's total revenue, which includes net
sales and membership fee, climbed 8.3% to $24,871 million from
the prior-year quarter, but fell short of the Zacks Consensus
Estimate of $25,109 million. Moreover, the rate of growth of
comparable-store sales decelerated to 5% in the second quarter
from 7% in the first quarter of fiscal 2013.
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
Going by the pulse of the economy, we believe that
budget-constrained consumers will remain watchful of their
spending and look for discounts. Consequently, we could see more
competitive pricing, compelling products and innovative ways to
attract shoppers during this holiday season.
Other Stocks Worth Considering
The other stock worth considering in the non-food
retail-wholesale sector is
Sears Holdings Corporation
) that carries a Zacks Rank #2 (Buy).
COSTCO WHOLE CP (COST): Free Stock Analysis
SEARS HLDG CP (SHLD): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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