(COST) Costco Wholesale Sustains Sales Momentum

Costco Wholesale Corporation (COST), one of the leading U.S. warehouse club operators, recently posted healthy sales data for the four-week period ended November 27, 2011.

The company has been able to maintain its sales momentum. After a 9% increase in October 2011, Costco’s comparable-store sales for the month of November climbed an equal percentage, reflecting comparable sales growth of 9% both at its U.S. locations and international divisions.

For the thirteen-week period ended November 27, 2011, the company registered comparable-store sales growth of 10%, with U.S. and international sales also increasing by 10%.

Excluding the effects of higher gasoline prices and foreign currencies fluctuation, Costco’s comparable-store sales for November climbed 7%, with U.S. and international comparable sales increasing 6% and 11%, respectively. For the thirteen-week period, the company registered comparable-store sales growth of 7%, with U.S. sales rising 7% and international sales climbing 10%.

Total net sales for November jumped 11% to $7.51 billion from $6.78 billion in the same month last year. For the thirteen-week period, sales increased 12% to $23.13 billion from $20.59 billion in the same period last year.

Costco currently operates 596 warehouses, which include 433 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 9 in Japan, 8 in Taiwan, 7 in Korea and 3 in Australia.

Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it offers. The company’s strategy to sell products at heavily discounted prices has helped it to sustain growth in beleaguered economic conditions as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is strongly positioned in the warehouse club industry.

However, Costco faces stiff competition Target Corporation (TGT) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT), which follows a similar business model that pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition, may depress sales and margins.

Based on the pulse of the economy, we believe that consumers will remain watchful on their spending in the upcoming holiday season, and thereby we could see more competitive pricing and new products to attract shoppers.

We believe that retailing companies will move heaven and earth to win the hearts of bargain hunters and it definitely remains a wait-and-watch story as to who emerges successful in wooing consumers in this distressed economy.

Given the pros and cons we maintain our long-term Neutral recommendation on the stock. Moreover, Costco holds a Zacks #3 Rank that translates into a short-term Hold rating, and correlates with our long-term view.

COSTCO WHOLE CP (COST): Free Stock Analysis Report

TARGET CORP (TGT): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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