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Costco's (COST) Stellar Comps Run & E-Commerce to Fuel Sales

Zacks Equity Research
·3 mins 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.

Notably, Costco registered an increase of 15% in net sales to $13.56 billion during four-week period ended Aug 30. This followed an improvement of 14.1% and 11.1% in the months of July and June, respectively. Again, comparable sales for the month of August rose 13.2%, reflecting an increase of 12.5%, 14.6% and 16.1% in the United States, Canada and Other International locations, respectively. Comparable sales in the months of July and June had risen 13.2% and 11.5%, respectively.


 

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

The company’s e-commerce sales have been showcasing a sharp increase owing to growing stay-at-home trends to maintain social distance amid the pandemic. We note that e-commerce comparable sales soared 101.9% during the month of August. This followed an increase of 75.3%, 85.8% and 106.2% in the months of July, June and May, respectively. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia.

To drive its 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, a leading provider of third-party end-to-end logistics solutions. The buyout bolsters Costco’s e-commerce capabilities and facilitate sales of "big and bulky" items.

Wrapping Up

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.

Notably, shares of this Zacks Rank #3 (Hold) company have advanced approximately 17.9% so far this year compared with the industry’s rally of 6.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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