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Costco (COST) Thrives on Stellar Comps Show & E-Commerce

Zacks Equity Research
·3 min read

Costco Wholesale Corporation’s COST growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Thanks to its status of “essential retailers,” this Issaquah, WA-based company has been benefiting from coronavirus-induced spike in demand. Cumulatively, these factors have been aiding this operator of membership warehouses in registering impressive comparable sales run.

In fact, the company’s strategy to sell products at discounted prices has helped it expand customer base. Under the current circumstances, people are exhibiting a preference for discount stores for essentials or other daily purchases. Apparently, Costco has emerged as viable option for them. The company’s differentiated product range resonates well with customers’ spending habits.

A Sneak Peek into Key Metrics

Costco registered an increase of 16.9% in net sales during the month of September. This followed an improvement of 15%, 14.1% and 11.1% in the months of August, July and June, respectively. Again, comparable sales for the month of September rose 15.5%. This followed an increase of 13.2% in both August and July, and 11.5% in June.

Undoubtedly, Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or at stores. Consumers’ increased shift to online purchasing owing to the coronavirus outbreak seems to have worked in favor of the company.

The company’s e-commerce sales have been showcasing a sharp increase owing to the rising stay-at-home trend to maintain social distance amid the pandemic. We note that e-commerce comparable sales soared 90.3% during the month of September. This followed an increase of 101.9%, 75.3% and 85.8% in the months of August, July and June, 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. The company acquired Innovel Solutions, which is a leading provider of third-party end-to-end logistics solutions. The buyout bolsters Costco’s e-commerce capabilities and facilitates sales of "big and bulky" items.

Bottom Line

Costco continues to be one of the dominant warehouse retailers based on the breadth 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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Target Corporation (TGT) : Free Stock Analysis Report
 
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
Dollar General Corporation (DG) : Free Stock Analysis Report
 
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Zacks Investment Research