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Costco Sustains Momentum in January, but Growth Slows

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Feb. 7 2019, Published 8:10 a.m. ET

Comps continue to grow

Costco (COST) outperformed Walmart (WMT) and Target (TGT) with its stellar comps growth in 2018. Meanwhile, the company posted healthy sales numbers for January 2019. However, the rate of comps and net sales growth is showing sequential deceleration (depicted in the chart below) as the company faces tough YoY comps.

Costco’s comps rose 5.2% for the four-week period ended February 3, 2019. Meanwhile, net sales increased 8.0% to $10.71 billion. Notably, Costco’s comps growth rate decelerated from 9.2% in November to 5.2% in January 2019. Meanwhile, its net sales growth rate also slowed from 9.8% in December to 8.0% in January 2019.

By region, comps rose 6.6% in the US led by higher traffic. Meanwhile, comps at the other international locations increased by 6.5%. Comps fell 2.9% in Canada.

Excluding the changes in gasoline prices and currency volatility, Costco’s comps rose 7.4%. Comps increased 7.3% in the US, 4.6% in Canada, and 11.2% at other international locations.

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Outlook  

We expect Costco to continue to report improved comps. However, the rate of growth is projected to decelerate. Also, other international sales in January benefitted from the shift in holiday dates, which in turn, is likely to hurt its February sales.

Costco continues to benefit from its price investment strategy, expanded distribution, and high membership renewal rates. However, Walmart and Target are quickly expanding their digital fulfillment options at newer locations, which could hurt its sales growth rate. Also, tough YoY comps could remain a drag.

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