Costco Wholesale Corporation (Nasdaq: COST) reported March comparable-store sales growth of 5.8 percent for its global business and 6.7 percent for its U.S. stores. Both numbers beat Wall Street consensus estimates, and analysts say Costco’s numbers show its popularity among shoppers has never been higher.
Analysts had been expecting a modest 4.5 percent comp growth in the U.S. and 4 percent growth overall. Costco once again overcame competition from Walmart ( WMT) and Amazon.com ( AMZN) and delivered some impressive monthly numbers, especially considering there was one less sales day in March 2018 than in March 2017.
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In addition to comparable-store sales, Costco reported that traffic increased 4.5 percent on the month in its U.S. stores and 4.3 percent globally. Online sales growth accelerated to 32.1 percent in March compared to 27.3 percent in the most recent quarter.
Stifel analyst Mark Astrachan says Costco’s heavy investments in its business may weigh on the company’s earnings in the near term, but Costco’s sales metrics indicate it is making all the right moves to position the company to deliver big earnings numbers in the long term.
“We believe the March comp represents a continuation of recent strong trends, indicating the company’s value proposition is winning with consumers, though we continue to believe earnings for retailers, including Costco, may be constrained near-term given the need for reinvestment to effectively compete,” Astrachan says.
Astrachan says Costco and other grocers will likely face margin pressures in the near term as Amazon tries to gain market share by underselling the competition.
“That said, longer term we believe the strong results should ultimately translate into multiple expansion and share price outperformance,” he says.
Morningstar analyst John Brick says investments in online sells are already showing positive results for Costco.
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“It’s becoming apparent to us that Costco is a force to be reckoned with in e-commerce,” Brick says. “We anticipate that the continued roll-out of its two-day dry grocery and same-day fresh grocery delivery offering, while presently insignificant, should be available in all 519 U.S. warehouses by year-end.”
Stifel has a “buy” rating and $200 price target for Costco. Morningstar has a “fairly valued” rating and $173 fair value estimate for COST stock.
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Costco Wholesale Corporation (COST) E-Commerce Investments Are Paying Off originally appeared on usnews.com
