Costco's Impressive Comps Run Likely to Drive Stock Higher

Costco Wholesale Corporation’s COST growth strategies, sturdy comparable-store sales (comps) performance and strong membership trends reinforce its position. It continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. In fact, the strategy to sell products at heavily discounted prices has helped it to remain on growth track.

Shares of this warehouse retailer — which came under pressure after the news of Whole Foods’ buyout by Amazon AMZN surfaced — has emerged stronger since then. Notably, the stock has surged 11.8% in the past six months compared with the industry’s growth of 5.5%.

This Zacks Rank #3 (Hold) company has also comfortably outperformed the Retail-Wholesale sector that advanced 6.9% during the said period. Currently, the stock is trading close to its 52-week high of $217.13, and there are valid reasons to believe that Costco with a VGM Score of A and long-term earnings growth rate of 11.1% could scale new highs. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Strengthening job market, rising disposable income and elevated consumer sentiment have ushered confidence in Costco that is persisting with its stellar comps show in 2018. Comps for the month of June rose 9.7%, following an advance of 11.7% in May, 10.9% in April, 8.6% in March, 10.5% in February and 6% in January.

Notably, the company generated net sales of $13.55 billion in the month of June, up 11.7% year over year. Meanwhile, net sales have improved 14.1%, 13.1%, 10.9%, 12.8% and 8.4% in the months of May, April, March, February and January, respectively.

Costco seems somewhat unfazed by the tough retail scenario. While major chains are grappling with sluggish store and mall traffic as consumers switch to online shopping, this Issaquah, WA-based company seems rather resilient to the challenging retail backdrop.

With the wave of digital transformation hitting the sector, retailers are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. Costco, which shares space with Walmart WMT and Target TGT, is no exception to this trend. It is also steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan. E-commerce comparable sales surged 27.9% in the month of June.

Additionally, a differentiated product range enables Costco to provide an upscale shopping experience for its members. Notably, membership fees have increased 14.4%, 12.6% and 9.8% in the third, second and first quarter of fiscal 2018, respectively.

Certainly, Costco’s sound fundamentals place the stock favorably in 2018.

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