Costco Wholesale Corp. experienced a 1.7% drop in its stock on Friday following the announcement of another month of same-store sales declines in June. However, the company attributes this decline to lower gasoline prices rather than consumer apprehension due to inflation. In the month of June, Costco’s same-store sales saw a decrease of 1.4%, with a wider decline of 2.5% in the United States compared to the 0.3% decline in May.
Although overall sales increased to $22.86 billion from $22.78 billion last year, the average gas price was down by 24% year-on-year. Excluding gas and foreign exchange factors, same-store sales actually rose by 3% in June, showing positive growth in the U.S., Canada, and international markets.
The average transaction size suffered a decrease of 5.4%, largely due to the lower gas prices. However, foot traffic experienced an increase across the board, rising by 3.6% in the United States. Notably, the categories of food, candy, sundries, tires, and health and beauty performed well, while home furnishings, toys, and sporting goods were on the weaker side.
According to D.A. Davidson analysts, this decline in same-store sales is the largest since April 2020, during the COVID pandemic, and the most significant non-COVID-impacted decline since July 2016.
While acknowledging COST’s strong performance in the market with an 18.0% increase year-to-date, compared to a 14.9% increase in the overall market (SPX) and a 4.6% increase in the SPDR S&P Retail ETF (XRT), the analysts caution that the recent softer comps may lead to a pause in the stock’s growth. D.A. Davidson currently maintains a neutral rating on the stock.
Costco Sales Trends in Uncertain Environment
According to analysts, adjusted for lower gas prices and forex impacts, Costco’s recent transaction size was negative, indicating a possible tightening of consumer budgets amidst an uncertain environment. However, the company’s model of offering discounted prices to value-oriented consumers has contributed to solid traffic growth, distinguishing it from other grocery businesses. Truist analysts maintain a positive outlook, highlighting that while sales were slightly soft, core trends remain steady.
Food and sundries continue to be the main drivers of Costco’s top-line performance, experiencing a high single-digit percentage rise. In contrast, discretionary items have decreased in the low single-digits. Despite this, analysts believe that Costco’s value proposition will continue to attract customers and result in incremental market share gains. Additionally, the company has demonstrated its ability to manage margins effectively. Consequently, analysts at Oppenheimer, who hold an outperform rating on the stock, view Costco favorably and have reinstated it as a top pick.
Multiyear sales trends in the U.S. remain consistent for Costco, further reinforcing its positive position in the market. Analysts believe that potential positive catalysts, such as a membership fee increase and special dividend, could contribute to even greater success in the future. It is essential to note that Costco’s pricing strategy stands out amidst rising grocery prices. This unique approach ensures that consumers receive exceptional value for their money.
Overall, Costco continues to navigate the uncertain economic landscape with resilience, adaptability, and strategic growth initiatives. As a testament to its performance, analysts recommend Costco as a worthwhile investment opportunity for buyers seeking stability and long-term success.
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