Costco Wholesale Corporation (NasdaqGS:COST - News), one of the leading U.S. warehouse club operators, recently posted healthy sales data for the four-week period ended January 29, 2012, on the back of higher gasoline prices. However, unfavorable foreign currencies fluctuation remains a drag.
The company has been able to maintain its sales momentum. After a 7% increase in December 2011, Costco’s comparable-store sales for the month of January 2012 climbed 8%, reflecting comparable sales growth of 9% at its U.S. locations and 6% at its international divisions. In the prior-year period, the company delivered comparable-store sales growth of 9%.
For the 22-week period ended January 29, 2012, the company registered comparable-store sales growth of 9%, with both U.S. and international sales increasing by 9%.
Excluding the effects of higher gasoline prices and foreign currencies fluctuation, Costco’s comparable-store sales for January climbed 8%, with U.S. and international comparable sales increasing 8% and 9%, respectively. For 22-week period, the company registered comparable-store sales growth of 7%, with U.S. sales rising 6% and international sales climbing 10%.
Total net sales for January jumped 11% to $7 billion from $6.3 billion in the same month last year. For the 22-week period, sales increased 11% to $40.18 billion from $36.08 billion in the same period last year.
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 to sustain growth amidst the beleaguered economic conditions, as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is strongly positioned in the warehouse club industry.
However, Costco faces stiff competition from Target Corporation (NYSE:TGT - News) and Sam’s Club, a division of Wal-Mart Stores Inc. (NYSE:WMT - News), 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. In terms of performance, Target lagged behind Costco, posting comparable-store sales growth of 4.3%.
Costco currently operates 598 warehouses, which include 433 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 11 in Japan, 8 in Taiwan, 7 in Korea and 3 in Australia.
Based on the pulse of the economy, we believe that budget-constrained consumers will remain watchful on their spending and look for discounts. Consequently, we could see more competitive pricing, compelling products and innovative ways to attract shoppers.
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 and correlates with our long-term view.
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