Costco Registers Consistent Growth Across Markets

Leading U.S. warehouse club, Costco (NASDAQ:COST), is scheduled to report its Q1 fiscal 2015 results on December 10th. In a recent press release, the company reported that its comparable store sales during the quarter increased by a healthy 7%, excluding the negative impact of declining gasoline prices and currency effects. Costco’s comparable sales in the U.S. increased by 7% as the company maintained its strong position in the gradually improving retail market. Internationally, the growth was also promising at 7%, which was driven by a rise in number of members in key international markets. ^[1]

Driven by the sluggish economic environment, U.S. buyers in numbers have switched to Costco to take advantage of its attractive bargains. This has translated into significant improvement in new membership signups and renewal rates, which have subsequently boosted comparable store sales growth in the U.S. In international markets, Costco has found tremendous acceptance due to its cost-saving shopping model. As a result, the company’s international revenue and comparable store sales growth, have outpaced its domestic growth for four consecutive years.

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As The U.S. Market Improves, Costco Performs Better

Costco has performed very well in the U.S., even when the retail environment wasn’t too conducive for several retailers including Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). As market conditions turned to the positive, the warehouse giant’s results improved further. In September, the company reported 6% rise in comparable store sales, as retail sales across the market increased by 4.3%. Consumer sentiment has improved significantly as the unemployment rate fell to 5.9% from 7.2% in the year ago period. ^[2] In October, Costco’s comparable store sales growth ticked up to 7%, even though the growth in retail sales slowed to 4%. This can be attributed to the fact that the jobless rate during the month was at a five-year low of 5.8%, which uplifted consumer spending. Costco maintained its growth momentum in November with 7% growth in comparable store sales. Several retailers across the industry reported better-than-expected results on account of a rise in holiday spending. ^[3] Overall, Costco’s comparable store sales gain during the three month period remained significantly ahead of the industry growth rate, which clearly reflects the warehouse giant’s supremacy in the U.S. retail market.

International Results Continue To Impress

Over the past four years, while Costco’s revenues in the U.S. have grown at an average annual rate of 5%, its international revenues have increased by almost 15% annually. It appears that consumers in international markets are welcoming the retailer’s business model, which promotes cost saving. In fact, early signups in Asia and Australia have been very strong, which is encouraging Costco to continue its expansion in these regions. Most of Costco’s growth is coming from its biggest international market – Mexico, where the recent economic slowdown has not troubled the retailer. In constant currency terms, Costco’s international comparable store  sales increased by almost 6% during September 2014, following 8% growth in the prior month. In the subsequent months, the company’s comparable store sales increased by 6% and 7% respectively, taking its quarterly comparable store sales growth to 7%. Such robust and consistent growth indicates that Costco is gaining momentum in key international markets.

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1. Costco Reports November Sales Results, Costco, Dec 4 2014 [↩]
2. Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics, Nov 7 2014 [↩]
3. U.S. Retailers’ November Sales Top Estimates on Early Deals, Bloomberg, Dec 5 2014 [↩]