• Costco sustained the momentum in its comps and reported strong domestic sales in August.
  • The company’s comps growth was impressive despite tough YoY comparisons, which could drive its stock more.

Costco (COST) had impressive sales numbers in August. The company’s domestic sales sustained the momentum and registered strong growth, which will likely support its stock. Costco was up against tough YoY (year-over-year) comparisons. However, the company managed to post industry-leading comps and sales growth.

Costco’s comps increased 5.5% in the four weeks that ended on September 1. The company’s net sales increased 6.9% to $11.79 billion. Costco’s stellar growth came after a 9.2% increase in its comps in the same period last year.

The company’s domestic sales remained strong despite more competitive activity. In August, Costco’s comps increased 6.4% in the US due to higher traffic and the ticket size. August is the third consecutive month that Costco’s US comps increased by more than 6%.

Meanwhile, Costco had comps growth of 3.6% and 2.3%, respectively, in Canada and other international markets. The company’s e-commerce sales increased 23.9%.

Excluding changes in currency rates and gasoline prices, Costco’s comps rose 5.9%. By segment, the company’s comps increased 5.9% in the US. The comps increased 6.1% and 5.9%, respectively, in Canada and other international markets.

Will Costco stock rise further?

We think that Costco’s mid to high-single-digit comps growth rate is impressive, especially at a time when it’s up against tough YoY comparisons. Costco’s unique value proposition continues to drive its traffic despite lagging its peers on the digital front.

Notably, the company’s peers invest heavily to expand their digital fulfillment options and shorten delivery time. For instance, Walmart (WMT) offers online grocery pickup services in more than 2,700 stores. More than 1,100 stores provide same-day grocery delivery. Walmart’s US comps continue to increase due to expanded digital fulfillment options.

Target’s comps benefit from expanding same-day delivery services, including delivery through Shipt, store pickup, and Drive-Up. On average, Target’s comps have increased 5% in the past five quarters.

Besides Walmart and Target, Amazon (AMZN) focuses on reducing the standard delivery time for its Prime members. Amazon invests to expand its fulfillment and logistics network. The company is rolling out its one-day free delivery for Prime members in the US. Amazon is increasing the number of items eligible for one-day free delivery.

We expect Costco’s peers to benefit from expanding fulfillment options. However, Costco could continue to outperform its peers with its comps growth rate in the coming quarters. The company’s high membership renewal rates indicate strength in its business. Costco’s value pricing and expanded assortments will likely continue to drive its traffic.

Industry-leading sales and the healthy earnings growth rate will likely support Costco stock.

As of this writing, Market Realist Amit Singh doesn’t hold a position in any of the securities mentioned above.

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