What Conclusions Can Be Drawn From Costco’s December Comparable Sales?
Costco‘s (NASDAQ:COST) stock has gained 2% since it reported strong December sales result last week. The retailer’s net sales grew 5% year-over-year (y-o-y) to $13.07 billion in December, and the company’s comparable sales increased 3% in the same period. Costco’s comparable sales increased 3% in the U.S. and 7% in Canada, but declined 3% in other international markets. Interestingly, Costco’s overall comparable sales excluding the impact of gasoline sales and foreign currency fluctuations also grew by 3%, driven by 3% growth in the U.S., 4% growth in Canada and a 4% rise in other international markets.
Effects of Gasoline and Currency Fluctuations
Costco’s comparable sales, including the negative impact of gasoline and currency fluctuations, declined in international markets in December. However, the company reported strong comparable sales growth of 7% in Canada for the same period. This growth could be attributed to many factors, including appreciation of the Canadian dollar and a rise in gasoline prices. The Canadian Dollar appreciated 3% y-o-y with respect to the U.S. dollar, and the gasoline prices grew 13% y-o-y in December 2016.
Although the biggest positive out of December’s report was the jump in Costco’s U.S. comparable sales. The company’s U.S. comparable sales grew in the last three months of 2016, after showing flattish trends for most of the year. However, Costco’s U.S. comparable sales, including the impact of gasoline remained flat year-over-year in December.
Better Retail Environment
December is as a critical month for retailers due to the holiday season. The University of Michigan’s U.S. consumer sentiment index rose to 98.2 during December, which was its highest value in over 12 years. [1] This index rises when consumers regain confidence in the economy, which predicts economic growth and thus increased consumer spending.
The U.S. unemployment rate in December was 4.70%, down 30 basis points from December 2015. To add to that, the average hourly earnings rose by 2.9% y-o-y in December, which outpaced 1.7% inflation in the U.S. economy. ((Recovery Finally Yields Big Gains for Average Worker’s Pay, nytimes.com, Dec 6, 2016)) Better economic conditions in the U.S.- rising wages, growth in the personal savings rate and declining unemployment – aided consumer spending in the last month of the year.
Have more questions about Costco? Please refer to our complete analysis for Costco
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap |
Notes:- US consumer sentiment at 98.2 in Dec vs 98.0 reading expected, cnbc.com, Dec 23 2016 [↩]