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Costco Sales Rise Amid Challenges

Zacks Equity Research

Amid a tough economic scenario, Costco Wholesale Corporation (COST) delivered comparable-store sales growth of 4% in March, following an increase 6% in February, and reflecting comparable sales growth of 5% at its U.S. locations and 2% at international outlets.

Costco’s comparable-store sales for the 31-week period ended Apr 7, 2013 rose 6% buoyed by an equivalent increase at both the U.S. and international locations.                               

Excluding the effect of gasoline prices and foreign currency fluctuations, Costco’s comparable-store sales for March rose 6% with U.S. and international comparable-sales elevating 6% and 5%, respectively. For the 31-week period, the company witnessed comparable-store sales growth of 5%, with U.S. and international sales rising at a similar rate.

Total net sales for March grew 7% to $9.67 billion from $9.07 billion in the year-ago period. Costco’s sales for the 31-week period increased 8% to $61.02 billion from $56.34 billion in the year-ago period.

Costco was able to post healthy sales results, when most of the retailers struggled against challenging macroeconomic factors including higher taxes and a soft employment scenario coupled with unfavorable weather conditions that restrained consumers from spending.

Retailers like The Cato Corporation (CATO), Gap Inc. (GPS) and The TJX Companies, Inc. (TJX) witnessed comps decline of 11%, 1% and 2%, respectively during this period.

Analysts are of the opinion that the calendar shift in Easter and expected fall in gasoline prices coupled with tax refunds is likely to boost April sales data.

We believe that Costco’s differentiated product range enables it to provide an upscale shopping experience to its members, resulting in market share gains and higher sales per square foot. Moreover, it continues to maintain a healthy membership renewal rate.

Costco 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.

Currently, shares of Costco maintain a favorable Zacks Rank #2 (Buy).

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