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Costco, Walmart, and Target: Comps Growth

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Costco continues to outperform Target and Walmart

With stellar comps growth, Costco (COST) has continued to outperform Target (TGT) and Walmart (WMT), despite their ramped-up digital business. Costco’s US comps grew 7.1% in the last reported quarter. Meanwhile, its overall comps rose 8.4%, reflecting increased store traffic and higher ticket size.

The company’s price investments, focus on merchandising, and membership-based business model continue to drive its top line higher. The company has defied industry trends and so far seems to be immune to the growing threat from Amazon (AMZN) and other deep discounters.

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In comparison, Target’s comps improved 3.6% in fiscal 4Q17, reflecting higher store traffic. The company’s digital business is growing at a brisk pace and is contributing meaningfully to its comps. Its focus on exclusive product launches and price investments have further supported its comps growth rate.

As for Walmart, its US comps increased 2.6%, driven by multichannel offerings, price investments, and fresh offerings through supply-chain reinvention. Notably, Walmart’s US stores have marked comps growth in 14 consecutive quarters, and its e-commerce business continues to support its comps growth rate.

Outlook

Analysts expect Costco to maintain healthy sales growth in fiscal 2018. Analysts expect Costco’s top line to improve 7.7% in fiscal 2018, driven by higher comps. However, analysts remain wary of the fact that sooner or later, Costco’s sales growth rate might take a hit from customers shifting towards e-commerce platforms.

Meanwhile, Walmart and Target are expected to register improved sales, thanks to their expanded delivery platforms, multichannel offerings, exclusive product launches, and price investments. However, their growth rates are likely to remain lower than Costco’s. Also, Walmart’s sales growth is expected to take a hit from the closure of its 63 Sam’s Club stores and removal of tobacco from several locations.

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