“Shopping at Costco, food and sundries selling. Costco is the barometer now of how the retailers are faring. Remember, Walmart stopped reporting the monthly sales figures, so with Coscto we look to see what people are buying. They beat expectations and the sales fell 2%. Wall street predicted 6%, so not as bad as expect but the sales were down.” — Fox Business Network 9/3/2009

On Thursday, many retailers reported sales results for the month of August and overall they were pretty decent. August is of particular interest to many analysts because much of the back to school shopping happens in this month. However, probably the biggest success had very little to do with back to school shopping. That was Costco (COST), which reported a much more minor drop in same store sales than analysts were expecting. Same store sales at Costco’s international locations were a particularly bright spot as they rose about 3%. Their stock rose today more than 8% on the news on about twice the average daily volume.

COST Costco is one of the best barometers of consumer behavior from month to month now that Walmart (WMT) does not report on a monthly basis. While Costco’s revenues are still just a fraction of Walmart’s totals, Costco is the biggest retailer by sales who still reports on a monthly basis. The takeaway from Costco’s quarter is that consumers are spending, but they are still primarily stocking up on essentials like food. Purchases of non-essentials like clothing and electronics continue to be a drag.

As for early results for back to school shopping, clothing retailers were mixed. Strong showings from teen retailers Gap (GPS), American Eagle (AEO), and Aeropostale (ARO) were all treated to nice gains in the market. Meanwhile, Abercrombie & Fitch (ANF) and JC Penny (JCP) both declined by more than expected. In general, shoppers remained thrifty and store traffic was better at lower priced retailers. For example, Gap’s quarter was greatly improved because of the performance of its lower end Old Navy stores.

Even though the market was able to rally around these results, the pace of sales was still worse than last year. There is a hope that September sales will be better than expected because Labor Day falls later this year, and the holiday has long been known as a big weekend for sales. Furthermore, comparisons to a year ago will hopefully be favorable going forward into the holiday season. After all, last year consumers retreated very rapidly in the face of an extremely uncertain future. We would expect more cautious purchase behavior out of consumers for the upcoming holiday season, but it still may be better than a year ago.

Costco Boosted By Essentials and Food