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Costco (COST) Outpaces Industry in Past 3 Months: Here's Why

·3 min read

Costco Wholesale Corporation COST, one of the widely recognized names in the Retail – Discount Stores industry, has exhibited an outstanding run on the bourses in the past three months. Thanks to its operational initiatives — focus on expanding customer reach, cost optimization and strategic investments — the stock has outpaced the industry and the Retail-Wholesale sector. In the said period, shares of Costco have surged about 17.3% compared with the industry’s growth of 10%. Meanwhile, the sector declined 0.6%.

Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 3.8% and 1.6% to $10.37 and $11.22, respectively, over the past 30 days. Notably, this Zacks Rank #2 (Buy) stock’s long-term earnings growth rate of 9.1% and a Growth Score of B highlight its inherent strength. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Strengthening Position in Industry

Costco’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Cumulatively, these factors have been aiding this Issaquah, WA-based company in registering impressive sales numbers.

The strategy to sell products at discounted prices has helped draw customers, who have been seeking both value and convenience amid the ongoing crisis. Markedly, the company’s net sales increased 24.2% year over year to $15.59 billion in the month of May. This followed an improvement of 33.5% and 17.6% in the months of April and March, respectively.

Undoubtedly, Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or at stores. We note that e-commerce comparable sales rose 12.1% during the month of May. This followed an increase of 20.5% and 57.7% in the months of April and March, respectively. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

To drive online sales, the company launched CostcoGrocery to deliver non-perishable items to buyers’ homes. Its partnership with Instacart facilitates same-day delivery of groceries to shoppers. Also, Costco’s acquisition of Innovel Solutions, a leading provider of third-party end-to-end logistics solutions, — now called Costco Logistics — has boosted its e-commerce capabilities and facilitates it to sell "big and bulky" items. The company is also on path to gradually provide curbside pickup facility to customers.

Wrapping Up

Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. It is also focused on ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Dollar General DG and Target TGT. We believe that the company’s business model and commitment toward opening membership warehouses will continue to drive traffic.

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