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Declining Consumer Confidence Favors Wal-Mart and Costco

NEW YORK, NY--(Marketwire - Dec 13, 2012) -  Much has been made of the recovering U.S. economy, as the unemployment rate continues to fall and the housing market heats up. However, the upcoming "fiscal cliff" is weighing on the minds of many Americans, which has caused consumer sentiment to drop. According to the Thompson Reuters/University of Michigan's consumer sentiment index, December's consumer confidence fell to levels not seen in four months, as individuals became wary of the potential for higher taxes following the fiscal cliff. The decline in sentiment could mark a return to bargain shopping, as consumers try to pinch pennies in anticipation of tough times. While this may not be positive news for the economy as a whole, it does stand to benefit discount oriented companies such as Costco Wholesale Corporation ( NASDAQ : COST ) and Wal-Mart Stores Inc. ( NYSE : WMT ). Lower gas prices are also giving customers a break, which could help to drive sales moving forward.

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Although consumer sentiment has declined of late, customers are still displaying a strong desire to shop, as was evidenced by stellar Black Friday numbers recorded near the end of November. A record setting number of shoppers went online and in stores over the holiday period, and the average spent by each individual also jumped up when compared to the same period last year. Wal-Mart had a particularly strong Black Friday, announcing that it saw bigger crowds than a year ago and had an encouraging response to a number of its initiatives designed to improve the shopping experience. The company stated that on the holiday Thursday alone, it served around twenty-two million customers. This augurs well for the upcoming Christmas season, as shoppers may be dealing with conflicting urges to spend while still wanting to save. As a result of this, discount retailers such as Costco and Wal-Mart could be in-line for a happy holiday. According to a recent survey, consumers are anticipated to spend roughly the same amount on Christmas gifts this year as they did a year ago.

Quarterly results have also been positive for a number of industry players, and those that can finish the year on a high note could be best positioned to take advantage of the New Year. Yesterday, Costco posted impressive financial results for the first quarter of fiscal 2013, ended November 25th, 2012. The company saw its net sales rise 10% to $23.20 billion as compared to $21.18 billion during the same period last year. Comparable first quarter sales grew by 7% in the U.S. while international sales jumped by 9%. Net income also expanded, as the company recorded a profit of $416 million as compared to $320 million in the year ago quarter.

Companies with international operations, like Costco and Wal-Mart, have also been able to better navigate domestic challenges, as a large geographical footprint has in some cases led to increased sales. Costco has been looking to expand its international presence further, as it newly stated that it has plans to open an additional store in South Korea before the end of the year. With the additional store, Costco will have nine locations in South Korea, along with stores in Canada, Japan and Mexico to name a few. Wal-Mart also has locations in a number of foreign markets, and continues to see strength from its operations abroad. 

As Christmas draws ever nearer, it will be interesting to see which companies drive the most people to their stores, and more importantly manage to convert them into buyers. With consumer confidence waning, companies that offer discounts could be well positioned to capitalize at this time. Those offering the most in-demand products could also perform well.

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