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Costco's (COST) Decent Comps Run to Fuel Top-Line Growth

Zacks Equity Research

Costco Wholesale Corporation’s COST growth strategies, sturdy comparable sales (comps) performance and strong membership trends reinforce its position in the competitive retail industry. In fact, the company’s strategy of selling products at heavily discounted prices has helped it remain on the growth trajectory. Additionally, a differentiated product range enables the company to provide an upscale shopping experience for members.

Moreover, sturdy labor market, steady wage gains and improved consumer sentiment are other catalysts. Cumulatively, these factors have been aiding the company’s top line performance, in spite of operating in a fast-changing retail landscape.

We note that Costco registered an increase 5.6% in total revenues during the first quarter of fiscal 2020. Looking ahead, the Zacks Consensus Estimate for the second quarter and fiscal 2020 indicates year-over-year growth of 8.1% and 6.6%, respectively. Certainly, decent comps run remain one of the key factors behind incremental sales.

The operator of membership warehouses had witnessed comps growth of 9% during the month of December. This follows an increase of 5.3% in November, 5.7% in October and 4.2% in September. Meanwhile, net sales improved 10.5% to $17.04 billion in the December month, following a rise of 6.7%, 6.8% and 5.6% in November, October and September, respectively.



Few Other Aspects

With the wave of digital transformation hitting the retail sector, Costco is rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. It is steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea, Taiwan and Japan. E-commerce comparable sales surged 43.1% in the month of December. In the last reported quarter, the company’s e-commerce comparable sales had risen 5.5% year over year.

We believe that Costco’s business model and commitment toward opening membership warehouses will continue to drive traffic. The company also remains focused on ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Dollar General DG and Target TGT.

It’s no wonder that Costco has been able to create a niche for itself in the industry. Notably, this Zacks Rank #2 (Buy) stock has surged 42.7% in a year, outperforming the industry’s rally of 36.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
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