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Could Costco’s Sales Outgrow Walmart’s and Target’s?

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May. 27 2019, Published 3:10 p.m. ET

Wall Street’s estimates

Costco’s (COST) sales growth rate has been impressive in the past several quarters, reflecting industry-leading comparable sales growth. The company has exceeded Wall Street’s estimates in seven of the past eight quarters, as shown in the graph below. On average, Costco’s top line has increased by 10.6% in the past seven quarters, which is impressive given the heightened competitive activity in the grocery business.

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In fiscal 2019’s third quarter, analysts expect Costco’s revenue to rise 7.2% YoY (year-over-year ) to $34.7 billion, outpacing Walmart’s (WMT) and Target’s (TGT) respective net sales growth of 1.0% and 5.0% during their last reported quarters. However, both retailers have maintained consistent comps growth.

Sales drivers

Costco’s sales growth has outpaced Walmart’s and Target’s in the past several quarters, thanks to its robust comps growth led by its higher traffic and average ticket size. Costco’s investment in price has attracted value-driven customers, and along with its expanded assortment and high US and Canadian membership renewal rates, has grown its comps. However, currency volatility and tough YoY comparisons could limit its top-line growth.

Costco still trails Walmart and Target in terms of digital initiatives. Both companies have expanded their digital offerings considerably, which could pose long-term challenges as customers seek convenience.

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