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Solid Comps, Strategic Initiatives to Aid Costco's Top Line

Costco Wholesale Corporation 's COST growth strategies, sturdy comparable-store sales (comps) performance, strong membership trends and higher penetration of Citi Visa co-brand card program are the pillars that reinforce its position. The company has one of the highest square footage growth in the industry and remains committed toward opening new clubs in domestic and international markets. These endeavors are likely to fuel top-line growth.

Analysts polled by Zacks expect second-quarter and fiscal 2018 revenues to come in at $32.64 billion and $138.28 billion, reflecting an increase of roughly 9.7% and 7.2%, respectively. The Zacks Consensus Estimate for earnings is currently pegged at $1.43 for the quarter under review and $6.69 for the fiscal, reflecting an improvement of approximately 22.2% and 15%, respectively.

Sturdy Comps Induce Confidence

Costco seems somewhat unfazed by tough retail scenario, comprising soft traffic and inclination toward online shopping. This Issaquah, WA-based company continued with positive comps performance driven by improved store traffic and average transaction size. Comps for December increased 11.5%, following an increase of 10.8% in November, 7.5% in October and 8.9% in September. Notably, net sales increased 14.3%, 13.2%, 10.1% and 12.1% in the respective months.

The operator of membership warehouses commenced fiscal 2018 on an upbeat note with both the top and bottom lines beating the Zacks Consensus Estimate for the third straight quarter, consequently sidelining the woes which have gripped the brick-and-mortar retailers for some time now. Moreover, both sales and earnings have also increased year over year.

We noted that total revenue grew 13.2% during the first quarter of fiscal 2018, following an increase of 15.7% and 7.8% in the fourth and third quarter of fiscal 2017. Earnings per share improved 16.2% in the first quarter, after registering growth of 17.5% and 12.9% in the preceding two quarters.

Costco Wholesale Corporation Price, Consensus and EPS Surprise

Costco Wholesale Corporation Price, Consensus and EPS Surprise | Costco Wholesale Corporation Quote

Strategic Endeavors

Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. In fact, the company's strategy to sell products at heavily discounted prices has helped it to remain on growth track. Moreover, analysts believe that the company is likely to gain from Wal-Mart's WMT latest decision to shut 63 of 660 Sam's Club outlets in the United States over the next few weeks.

It is also gradually expanding e-commerce capabilities in the United States, Canada, UK, Mexico, Korea and Taiwan. Consequently, comparable e-commerce sales have surged 33.3%, 39%, 31% and 30% in December, November, October and September, respectively.

Additionally, a differentiated product range enables Costco to provide an upscale shopping experience for its members, consequently resulting in market share gains and higher sales per square foot. Notably, membership fees have increased 9.8% in the first quarter of fiscal 2018, and 13.3% and 4.2% in the fourth and third quarter of fiscal 2017.

Wrapping Up

Certainly, Costco's sound fundamentals placed the stock favorably in 2018. Shares of this Zacks Rank #3 (Hold) are hovering close to its 52-week high of $195.35, and there is no reason why the stock cannot breach that mark in the near term. In the past three months, the stock has increased 19.3% compared with the industry 's growth of 21.2%.

2 Key Picks in the Retail Space

Target Corporation TGT delivered an average positive earnings surprise of 10.2% in the trailing four quarters. It has a long-term earnings growth rate of 4% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Ross Stores, Inc. ROST delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10% and a Zacks Rank #2 (Buy).

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Wal-Mart Stores, Inc. (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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