Costco’s October Growth Beats Estimates As Consumer Confidence Improves
Warehouse giant Costco (NASDAQ:COST) recently reported its October sales results that turned out better than the consensus estimates. The retailer’s overall comparable sales increased by 4.0%, while analysts were expecting 3.6% rise in this metric. In the U.S., comparable sales growth for the four week period stood at 6%, but it remained flat in international markets mainly due to the negative impact of currency fluctuations. Excluding the impact of gasoline price deflation and foreign exchange, comparable sales in the U.S. and international markets increased by 7% and 6%, respectively. [1] Overall, the company’s net sales grew by 7% to $8.73 billion, concluding another month of good performance. Growth in the company’s revenues can be attributed to a healthy rise in new membership signups along with store expansion. Amid an uncertain economic environment in the U.S., the warehouse shopping model has become very popular among buyers looking for cost-saving deals. Being the strongest warehouse retailer in the U.S., Costco has been customers’ first choice, which is evident from its growing member base. For several quarters now, the company has registered a rise in its membership renewal rates and new membership signups.
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Historically, Costco has generated the bulk of its comparable sales growth from an increase in number of members, which appears to be the case in October as well. While the company does not provide details related to its member base on monthly basis, we will consider the increase in number of members from Q4 fiscal 2013 (the quarter that ended before July 2013) to Q4 fiscal 2014, as an indicator for the rise in member base for October 2014. As of August 31 2014, Costco had about 76.4 million cardholders, while it had only 71.2 million cardholders in the quarter ending on September 1 2013. Making a conservative assumption that the number of cardholders from August to October increased by a similar amount during both the years, we conclude that October 2014 had 5.2 million more cardholders that October 2013. Also, membership renewal rates in North America and worldwide were 90.6% and 87.3%, respectively, at the end of Q4 fiscal 2014, up from 90% and 86.3% respectively, in the same quarter last year.
The better retail environment in October also helped Costco’s comparable sales growth. Encouraged by a promising job scenario, U.S buyers opened up their wallets during the month, which resulted in 4% year over year growth in U.S. retail sales. The unemployment rate fell to a five year low of 5.8%, which had a positive impact on consumer sentiment. [2] The Thomson Reuters/University of Michigan’s U.S. consumer sentiment index rose to 86.9 during the month, which was its highest value in over seven years. [3] As a result, U.S. buyers were more generous with their spending during this year’s Halloween shopping, which resulted in strong retail growth during the fourth week of the month. [4]
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Notes:
- Costco Wholesale Corporation Reports October Sales Results, Costco, Nov 6 2014 [↩]
- Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics, Nov 7 2014 [↩]
- U.S. consumer sentiment at highest since July 2007, Reuters, Oct 31 2014 [↩]
- U.S. Retail Sales Rise in October from September – Redbook, Nasdaq, Nov 4 2014 [↩]