In a collapsing retail sector, Costco has proven one bright shining light. As consumers labor under the increasing pressures of inflation, they are choosing to consolidate shopping trips into one trip, and looking for the best possible values by buying in bulk. That makes Costco a perfect retailer for the current market conditions.
On Thursday, the retailer reported June same-store sales excluding-fuel, were up 13%. Store traffic was up 10.2% year over year, ‘core” U.S. sales were up 13.2%, and online sales improved 13%.
Costco reported increases in sales in every merchandise department, with mid-teens rises in its food departments.
Jefferies analyst Corey Tarlowe wrote in a note, “Costco is the dominant leader in the attractive warehouse club channel. We see prospects for the company to deliver comparable sales 1-2 percentage above historical levels based on: 1) channel shift from traditional grocery, department stores, and specialty retail; 2) higher growth among Gen Y/Z demos w/ stronger skew toward club offerings; and 3) bigger baskets as customers increasingly shop categories beyond food.”
Tarlowe has placed a buy rating on Costco, with a target of $580. Costco closed Friday up 1.33%, at 501.54.
Other retailers have not fared as well. Target was the first to reveal there were problems afoot, when it announced it was liquidating vast amounts of its inventory and was going to be cautious on near term profits.
Then more recently, RH and Kohls issued financial warnings for the second quarter, while Bed Bath & Beyond ended up in such bad financial straits it is rumored they have turned off their air conditioning, and some analysts think the company may go under in a year.
The SPDR S&P Retail ETF, a good proxy for retail stocks overall, is down 32% year-to-date. The S&P 500 by contrast, is only down 18%.
This has many analysts down on the retail sector.
Wells Fargo retail analyst Ike Boruchow wrote in a note, “We remain downbeat on the near-term fundamental prospects in our space. On top of that, our recent channel work suggests the space continues to soften: 1) foot traffic trends slowing further to end June and; 2) a promotional cadence that continues to worsen (especially in the mid-tier apparel space).”
But where other retailers are struggling, Costco is thriving.
