Costco's Comps Rise

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Costco Wholesale Corporation (COST), the leading U.S. warehouse club operator, posted healthy comparable-store sales data for the five-week period ended Feb 3, 2013 that marginally betters analysts’ expectations. Sales for the month were negatively affected by changes in gasoline prices but favorably by foreign currency fluctuation.

After an increase of 9% in December, Costco’s comparable-store sales for January climbed 4%, reflecting comparable sales growth of 3% at its U.S. locations and 5% at international outlets. In the prior-year period, the company delivered comparable-store sales growth of 8%.

In terms of performance, this Zacks Rank #3 (Hold) stock fared better than its nearest competitor, Target Corporation (TGT) that came up with a 3.1% increase in comparable-store sales. Jan 2013 was strong on the whole for most retailers, with players such as Kohl's Corp. (KSS), Nordstrom Inc. (JWN) and Stage Stores Inc. (SSI) registering comparable-store sales growth of 13.3%, 11.4% and 10.5%, respectively.

Costco’s comparable-store sales for the 22-week period ended Feb 3, 2013 rose 6% buoyed by a 6% and 7% 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 January rose 4% with U.S. and international comparable-sales elevating 4% and 3%, respectively. For the 22-week period, the company witnessed comparable-store sales growth of 5%, with U.S. and international sales rising 6% and 5%, respectively.

Total net sales for January grew 7% to $9.35 billion from $8.74 billion in the year-ago period. Costco’s sales for the 22-week period increased 9% to $43.77 billion from $40.18 billion in the year-ago quarter.

The five-week period ended Feb 3, 2013 has one less day compared with the prior-year period on account of the timing of the New Year's holiday. This led to a decrease of approximately 2% in total and comparable-store 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 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. The company now targets 14 more new warehouses before the end of fiscal 2013.

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