Having delivered comparable-store sales growth consistently,
Costco Wholesale Corporation
) is well positioned in the warehouse club industry. The company
has unswervingly registered comparable-store sales growth from
January to June.
Within this period, comps growth touched a low of 2% and hit a
high of 6%, thereby recording an average growth of approximately
4.7%. In the first six months of 2014, comps increased 4% in
January, 2% in February, 5% in March and April, and 6% in May and
Costco continues to be a dominant retail wholesaler based on the
range and quality of merchandise it offers. The company's strategy
of selling products at heavily discounted prices has helped it to
sustain growth as budget-conscious customers continue to see it as
a viable option for low-cost necessities.
We believe that Costco's differentiated product range enables it
to provide an upscale shopping experience to its members, resulting
in market share gains and higher sales per square foot. Moreover,
it continues to maintain a healthy membership renewal rate. The
company is also gradually expanding its e-commerce capabilities in
the U.S., Canada, U.K. and Mexico.
Now the question is whether Costco's positive comps can reverse
its earnings miss story. Costco delivered negative earnings
surprises when compared with the Zacks Consensus Estimate in the
last 4 quarters. Starting fourth quarter fiscal 2013 through third
quarter fiscal 2014, the company delivered negative earnings
surprises of 4.1%, 5.9%, 10.3% and 1.8%, respectively.
Moreover, 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.
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
Currently, Costco carries a Zacks Rank #3 (Hold).
Other Stocks Worth Considering
A better-ranked stock worth considering in the retail sector is
Big Lots Inc.
), which carries a Zacks Rank #2 (Buy).
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WAL-MART STORES (WMT): Free Stock Analysis
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COSTCO WHOLE CP (COST): Free Stock Analysis
BIG LOTS INC (BIG): Free Stock Analysis Report
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