Costco Wholesale Corporation
) 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.
Early December, Costco revealed its comparable-store sales
data for the month of November. Comparable-store sales for
November climbed 6%, after an increase of 7% in October, and
reflect comparable sales growth of 6% at its U.S. locations and
7% at international outlets. In the prior-year period, the
company delivered comparable-store sales growth of 9%.
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 opening new clubs in domestic
and international markets. The company opened 16 net new
locations in fiscal 2012, and plans to open 30 new outlets in
fiscal 2013. The company's diversification strategy is a natural
hedge against risks that may arise in specific markets.
Costco recently came out with its first-quarter fiscal 2013
results. The quarterly earnings of 95 cents a share beat the
Zacks Consensus Estimate by a couple of cents, and surged 18.8%
from 80 cents earned in the prior-year period. The warehouse
retailer's total revenue, which includes net sales and membership
fee, climbed 9.6% to $23,715 million from the prior-year quarter,
but fell short of the Zacks Consensus Estimate of $23,761
The economy is still not out of the woods, and whether 2013
will mark a complete turnaround is difficult to predict unless
some concrete steps are taken. Each and every company is vying to
survive the downturn and reach the helm.
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
Moreover, the company's customers are sensitive to
macro-economic factors including interest rate hikes, increase in
fuel and energy costs, housing market, and unemployment and
household debt levels, which may affect their spending.
Given the pros and cons, we maintain our long-term "Neutral"
recommendation on the stock. Moreover, 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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