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Why Costco Is Likely to Sustain Its Growth Momentum

Amit Singh - Author
By

Nov. 27 2018, Updated 7:31 a.m. ET

Costco unfazed by competition

Costco (COST) remained unfazed by competition, reporting stellar sales and earnings growth in 2018. On average, Costco’s monthly comps have increased 9.2% in the first ten months of 2018—which is exceptional, given the heightened competition in the grocery space with the expansion of Amazon (AMZN) and peers like Walmart (WMT) and Target (TGT) ramping up their digital offerings.

Costco focused on pricing and merchandising, which continued to drive traffic and its comps growth rate. Costco’s membership renewal rate remained high (90.4%), which is an encouraging sign. Also, the company managed to grow its earnings at an impressive double-digit rate over the past six consecutive quarters.

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Outlook

We expect Costco to sustain its solid growth momentum in both sales and earnings in the coming quarters. Costco’s investment in pricing to widen its value gap with peers is likely to drive traffic and, in turn, comps. Meanwhile, expanded offerings and a high membership renewal rate should further support the comps growth rate.

Costco’s bottom line is projected to grow at a high single-digit rate in fiscal 2019, which is impressive, given the tough year-over-year comparisons. Costco’s industry-leading comps growth rate, lower taxes, increased membership fee income, and tight control of overhead costs are expected to drive the company’s earnings in the coming quarters. However, pressure on margins could continue to hurt.

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