Costco’s strong fundamentals
As we discussed in the previous part, Costco (COST) has managed to generate industry-leading comps, or comparable same-store sales growth, despite increased competition and a soft retail environment. It’s surprising to see Costco stock taking such a beating. The company performed better than most of its peers. Its value pricing, unique membership-only business model, and vast offerings helped it drive store traffic. In contrast, Kroger (KR), Target (TGT), and Whole Foods (WFM) are struggling to drive store traffic. They reported negative comps during the last reported quarter. Walmart’s (WMT) store traffic improved, while its average ticket size declined.
Recent performance remains healthy
Costco is generating healthy monthly comps. In June, the company’s comps rose 6.0% with the US (SPY), Canada, and Other International locations witnessing 6.5%, 3.2%, and 6.2% growth, respectively. Excluding the currency and gasoline impact, Costco’s June comps rose 6.5%. The US, Canada, and Other International locations registered growth of 6.3%, 6.8%, and 7.1%, respectively.
The company’s worldwide comparable traffic rose 4%, while it rose 4.5% in the US. The average transaction size rose 1.5% during the month. By product categories, Costco is witnessing healthy growth at its food and sundries segment due to improved sales of frozen foods, coolers, and foods and candy. The fresh foods category also rose, which reflects increased sales in the meats and service deli segments. Costco continues to generate higher sales in hard lines and soft lines.
During the last reported quarter, management remained upbeat about its membership program. The company continues to maintain a high renewal rate (90.2% in the US and Canada and 87.5% globally). Costco is witnessing increased penetration in its executive memberships.
Analysts remain upbeat about the company’s fundamentals and sales outlook in the coming quarters. However, investors’ negative sentiments due to Amazon’s (AMZN) expansion are playing spoilsport and hurting Costco stock.