Costco Wholesale Corporation (COST), one of the leading U.S. warehouse club operators, recently posted healthy sales data for the five-week period ended April 3, 2011.
The company sustained its sales momentum. After an 8% increase in February 2011, Costco’s comparable-store sales for March rose 13%, reflecting a comparable sales growth of 11% at its U.S. locations and 17% at its international divisions. For the thirty-one week period ended April 3, 2011, the company registered a comparable-store sales growth of 8%, with U.S. and international sales increasing 6% and 14%, respectively.
The sales results include contribution from the company’s Mexican joint venture. Costco began incorporating results of its Mexico operations on a prospective basis with the commencement of its fiscal 2011 on August 30, 2010.
Excluding the effects of higher gasoline prices and a softer dollar, Costco’s comparable-store sales for March climbed 8%, with U.S. and international comparable sales increasing 7% and 11%, respectively. For the thirty-one week period, the company registered comparable-store sales growth of 5%, with U.S. sales rising 4% and international sales climbing 9%.
Total net sales for March jumped 17% to $8.33 billion from $7.15 billion in the same month last year. For the thirty-one week period, sales increased 12% to $50.79 billion from $45.21 billion delivered in the same period last year.
Excluding the contribution from the company’s Mexican joint venture, sales would have increased 14% and 9% for the five and thirty-one weeks periods, respectively.
On a regional basis, Costco registered robust performance in Texas, the Midwest, Southeast and California. Internationally (in local currencies), healthy results were witnessed in Korea, Japan, Mexico and Taiwan.
Management hinted that March sales and comparable-store sales were favorably impacted by approximately 1% to 2% due to the shift in the Easter holidays but store cannibalization lowered comparable-store sales by about 35 basis points.
Costco currently operates 580 warehouses, including 424 in the United States and Puerto Rico, 80 in Canada, 32 in Mexico, 22 in the United Kingdom, 8 in Japan, 7 in Korea, 6 in Taiwan and 1 in Australia.
Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it offers. The company’s strategy to sell products at heavily discounted prices has helped it to maintain positive growth in beleaguered economic conditions as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is strongly positioned in the warehouse club industry.
However, Costco faces stiff competition from BJ’s Wholesale Club Inc. (BJ) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT). These two rivals follow similar business models as they market high volumes of merchandise at low prices in a membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition, may depress sales and margins.
Currently, we have a long-term Neutral rating on the stock. Moreover, Costco holds a Zacks #3 Rank, which translates into a short-term Hold rating, correlating with our long-term recommendation.
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