Costco Wholesale Corporation (COST), one of the leading U.S. warehouse club operators, recently posted healthy sales data for the four-week period ended July 31, 2011.
The company has been able to sustain its sales momentum. After a 14% increase in June 2011, Costco’s comparable-store sales for July rose 10%, reflecting a comparable sales growth of 6% at its U.S. locations and 22% at its international divisions. For the forty-eight week period ended July 31, 2011, the company registered comparable-store sales growth of 10%, with U.S. and international sales increasing 7% and 16%, respectively.
The sales results include contribution from the company's Mexican joint venture. Costco began incorporating results of its Mexican operations on a prospective basis with the commencement of its fiscal 2011 on August 30, 2010.
Excluding the effects of higher gasoline prices and a softer dollar, Costco’s comparable-store sales for July climbed 5%, with U.S. and international comparable sales increasing 3% and 12%, respectively. For the forty-eight week period, the company registered comparable-store sales growth of 6%, with U.S. sales rising 5% and international sales climbing 10%.
Total net sales for July jumped 15% to $6.74 billion from $5.86 billion in the same month last year. For the forty-eight week period, sales increased 14% to $80.18 billion from $70.37 billion delivered in the same period last year.
Excluding the contribution from the company's Mexican joint venture, sales would have increased 12% and 11% for the four and forty-eight week periods, respectively.
Costco currently operates 587 warehouses, which include 428 in the United States and Puerto Rico, 81 in Canada, 32 in Mexico, 22 in the United Kingdom, 8 in Japan, 7 in Korea, 6 in Taiwan 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 maintain positive 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 from BJ’s Wholesale Club Inc. (BJ) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT). These two rivals follow similar business models as they market 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.
Currently, we have a long-term Neutral recommendation on the stock. Moreover, Costco holds a Zacks #3 Rank, which translates into a short-term Hold rating.
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