Costco Wholesale Corporation (COST) appears unfazed by the soft recovery in the U.S. economy. The company has managed to keep an upbeat note and sustain its sales momentum amid heightened competition to grab a bigger share of the market.
Costco continues to be a dominant retail wholesaler, based on the breadth and quality of the merchandise it offers. The company’s strategy to sell products at heavily discounted prices has helped it to remain on a growth track, as cash-strapped customers continue to see it as a viable option for low-cost necessities.
Riding on Positive Comps
Costco is well positioned in the warehouse club industry, having delivered positive comparable-store sales consistently so far in 2014.
Costco, which faces stiff competition from Target Corporation (TGT) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT), has consistently registered comparable-store sales growth from January to July. Within this period, comps growth touched a low of 2% and hit a high of 6%, thereby recording an average growth of approximately 4.7%. In the first seven months of 2014, comps increased 4% in January, 2% in February, 5% in March and April, 6% in May and June each, and 5% in July.
Given the current macroeconomic environment, monthly sales data for Costco is also encouraging, reflecting consistent growth. The company, within the span of January to July, registered sales growth in the range of 4%–10%, reflecting average growth of approximately 7.4%. The company registered sales growth of 6% in January, 4% in February, 8% in March, 7% in April, 8% in May, 10% in June and 9% in July.
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 open new clubs in domestic and international markets. The company’s diversification strategy is a natural hedge against risks that might crop up in specific markets.
Costco currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the retail sector is Burlington Stores, Inc. (BURL), which holds a Zacks Rank #1 (Strong Buy).