What To Make Of Costco’s October Comparable Sales
Costco‘s (NASDAQ:COST) stock has increased slightly since it reported strong October sales last week. The retailer’s net sales grew 10% year-over-year (y-o-y) to $10.2 billion in October, and the company’s comparable sales increased a better-than-expected 8% in the same period. Costco’s comparable sales increased 7% in the U.S., 9% in Canada and 8% in other international markets. Also, Costco’s overall comparable sales – excluding the impact of gasoline sales and foreign currency fluctuations – grew by 6%, driven by 6% growth in the U.S., 3% growth in Canada and a 7% rise in other international markets. This growth momentum confirms that the company is still able to grow traffic at its brick and mortar warehouses despite stiff competition in the grocery sector, and growing overlap with Amazon (NASDAQ: AMZN) since it purchased Whole Foods.
Our $169 price estimate for Costco’s stock is slightly ahead of the current market price.
- Costco’s model works on thin margins and large volumes, and therefore the company is not keen on selling smaller quantities online. In fact, Costco’s online sales made up just 2% of the company’s total U.S. sales, and 4% of its overall net sales in 2016. Given the fact that Costco has been able to grow its revenues and comparable sales with its model, without a strong focus on e-commerce, suggests that Costco is likely to be the least affected retailer in the Amazon-dominated retail industry.
- Another takeaway from the October report is that the company is able to maintain its U.S. same-store sales at the 7% growth mark (over the last three quarters). Costco’s organic performance has been keeping pace with the U.S. retail industry, in large part due to its business model. We expect the market trends to continue into October as well (industry data not available yet).
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