Costco Posts Robust Comps - Analyst Blog

The holiday season ended on an upbeat note for Costco Wholesale Corporation ( COST ), as the leading U.S. warehouse club operators posted robust December comparable-store sales data that betters analysts' expectations. Sales for the month were positively impacted by inflation in gasoline prices and favorable foreign currency fluctuation.

After an increase of 6% in November, Costco's comparable-store sales for December climbed 9%, reflecting comparable sales growth of 8% at its U.S. locations and 10% at international outlets. In the prior-year period, the company delivered comparable-store sales growth of 7%.

In terms of performance, Costco fared far better than its nearest competitor, Target Corporation ( TGT ) that came up with flat comparable-store sales compared with a 1.6% increase in the prior-year period.

Costco's comparable-store sales for the 17-week period ended December 30, 2012 rose 6% buoyed by a 6% and an 8% jump in comparable-store sales in the U.S. and international locations, respectively.

Excluding the effects of gasoline prices and foreign currency fluctuations, Costco's comparable-store sales for December rose 8% with U.S. and international comparable-sales elevating 8% and 6%, respectively. For the 17-week period, the company witnessed comparable-store sales growth of 5%, with U.S. and international sales rising by an equivalent percentage.

Total net sales for December surged 12% to $11.21 billion from $10.05 billion in the year-ago period. Costco's sales for the 17-week period increased 9% to $34.42 billion from $31.68 billion in the year-ago quarter.

The five-week period ended December 30, 2012 includes an additional day compared with the prior-year period on account of the timing of the New Year's holiday. This led to an increase of approximately 2% in total and comparable sales.

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's diversification strategy is a natural hedge against risks that may arise in specific markets.

However, Costco faces stiff competition from Target Corporation 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 622 warehouses, comprising 448 warehouses in the United States and Puerto Rico, 85 in Canada, 32 in Mexico, 23 in the United Kingdom, 13 in Japan, 9 in Taiwan, 9 in Korea, and 3 in Australia.

Currently, 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 Report

TARGET CORP (TGT): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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