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Costco is dominating retail as economy slows

·Anchor, Editor-at-Large
·3 min read
In this article:
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While the rest of retail begins cracking under the weight of consumers pulling back, Costco is proving to be the shining light in the current storm.

Pros say Costco is gaining market share right now as shoppers consolidate trips and search for savings in bulk buying amid the period of high inflation. Costco is doing its part to feed that thesis.

On Thursday, the warehouse retailer said that June same-store sales — excluding fuel sales — rose an impressive 13%. Store traffic surged 10.2% year over year and "core" U.S. sales improved 13.2% while e-commerce sales rose 13%.

WASHINGTON, D.C., Aug. 15, 2020 -- Shoppers wearing face masks leave a Costco wholesale store in Washington, D.C., the United States, Aug. 14, 2020. A new ensemble forecast published by the U.S. Centers for Disease Control and Prevention has projected up to 200,000 total COVID-19 deaths in the U.S. by Sept. 5. (Photo by Ting Shen/Xinhua via Getty) (Xinhua/ via Getty Images)
WASHINGTON, D.C., Aug. 15, 2020 -- Shoppers wearing face masks leave a Costco wholesale store in Washington, D.C., the United States, Aug. 14, 2020. (Photo by Ting Shen/Xinhua via Getty) (Xinhua/ via Getty Images)

Overall, Costco notched sales increases in all of its merchandise departments, led by a mid-teens percentage increase in its food business.

"Costco is the dominant leader in the attractive warehouse club channel," Jefferies analyst Corey Tarlowe wrote in a note to clients. "We see prospects for the company to deliver comparable sales 1-2 percentage above historical levels based on: 1) channel shift from traditional grocery, department stores, and specialty retail; 2) higher growth among Gen Y/Z demos w/ stronger skew toward club offerings; and 3) bigger baskets as customers increasingly shop categories beyond food."

Tarlowe maintained a buy rating on Costco's stock with a price target of $580. The retailer's shares rose more than 1.5% to $502 as of 2:41 p.m. ET during Friday's trading session.

Suffice to say, the news in retail over the past month or so has been anything but Costco-like.

Discounter Target kicked off the concerns about the sector's health with a shocking decision to liquidate massive amounts of slow-moving inventory (notably in home goods) and take a more cautious view on near-term profits.

Since then, retailers such as RH, Bed Bath & Beyond, and Kohl's issued financial warnings for the second quarter. Bed Bath & Beyond's outlook was so dire it prompted one analyst to tell Yahoo Finance Live the company may go out of business.

Nike took a more measured approach to its full-year financial outlook when it reported quarterly earnings.

ORLANDO, FLORIDA, UNITED STATES - 2022/05/31: Shoppers wait in a check-out line at a Costco wholesale store in Orlando. Costco reported a double-digit rise in sales during the third quarter and record numbers of new members as consumers look for ways to fight rising food prices caused by inflation. (Photo by Paul Hennessy/SOPA Images/LightRocket via Getty Images)
ORLANDO, FLORIDA, UNITED STATES - 2022/05/31: Shoppers wait in a check-out line at a Costco wholesale store in Orlando. (Photo by Paul Hennessy/SOPA Images/LightRocket via Getty Images)

Retail stocks — as measured by the SPDR S&P Retail ETF — have tanked 32% year-to-date, compared to an 18% decline for the S&P 500.

The warnings have many retail analysts bracing for a stretch of bad earnings reports and share price reactions.

"We remain downbeat on the near-term fundamental prospects in our space," Wells Fargo retail analyst Ike Boruchow wrote in a note to clients. "On top of that, our recent channel work suggests the space continues to soften: 1) foot traffic trends slowing further to end June and; 2) a promotional cadence that continues to worsen (especially in the mid-tier apparel space)."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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