Leading U.S. warehouse club Costco (NASDAQ:COST) recently reported its March sales, witnessing sustained revenue and comparable sales growth globally. Net sales increased by 8% during the month to $10.43 billion and comparable sales grew by 5%, which was way ahead of the consensus estimate of 3.5%. Excluding the impact of foreign currency fluctuations and gasoline deflation, Costco’s comparable sales increased by 7%.  The retailer’s growth has picked up after February, when its comparable sales rose by just 3% on account of bad weather conditions that prevented store visits.  What’s pleasing to see is that Costco was able to deliver good results against a tough comparable period of March 2013. Moreover, its international results were particularly good during the month, which indicates that its business model is prospering in international markets.
Our price estimate for Costco stands at $121, implying a premium of less than 10% to the market price.
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U.S. Results Were Good
During March 2014, Costco’s comparable sales in the U.S. increased by a healthy 6% excluding the impact of lower gasoline pricing. While the growth looks pleasing, the extra day in March 2014 and shift in timing of Easter also had parts to play in the company’s results. The company stated that the calender shift had a positive impact of 1-1.5 percentage points on its revenues as well as comparable sales. Excluding the extra day, Costco’s comparable sales growth was in the range of 4.5%-5%, which is still much better than what the market expected. 
This comes as good news for the company as it wasn’t able to match market’s expectations in terms of profits in Q2 fiscal 2014 that ended in February. Moreover, considering that Costco realized 6% comparable sales growth (U.S.) in the comparable period (i.e. March 2013), the underlying performance looks good. The company’s growth is being propelled by the rising member base, as U.S. buyers look for cost saving options amid a weak macro-economic environment.
International Results Continue To Please
In constant currency terms, Costco’s international comparable sales increased by almost 9% during March 2014, indicating that the company is gaining momentum in key international markets. Interestingly, this growth was on top of 7% comparable sales growth witnessed in the same month last year.  Due to its unique shopping model that promotes cost savings, Costco has found tremendous acceptance in international markets such as Mexico, Canada, Japan, etc. Over the past four years, the company’s international revenue, as well as comparable sales growth, have outpaced its domestic growth.
During the month, Costco’s international results benefited from heavy store traffic and increased value-per -ransactions in Japan. Since sales taxes were set to rise in the country from April 1, Japanese buyers bought more during March.  This boosted sales of several retailers including Costco. However, the retailer operates less than 20 stores in the country out of its 173 international stores, which suggests most of its growth came from other regions. We believe that Costco can sustain its international comparable sales growth, going forward, as buyers in Canada and Mexico (its biggest international markets) continue to buy quality products at affordable prices at its stores.Notes:
- Costco Wholesale Corporation Reports March Sales Results, Costco, Apr 10 2014 [↩] [↩]
- Costco Wholesale Corporation Reports Second Quarter and Year-to-Date Operating Results for Fiscal 2014 and February Sales Results, Costco, Mar 6 2014 [↩]
- Costco March same-store sales beat estimates, Reuters, Apr 10 2014 [↩] [↩]