Costco Sustains 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 August 29, 2010.

The company sustained its sales momentum. After a 6% increase in July 2010, Costco’s comparable-store sales for August rose 7%, reflecting comparable sales growth of 6% at its U.S. locations and 11% at its international divisions. Comparable-store sales for fourth-quarter 2010 grew 6% with U.S. sales up 4% and international sales up 14%. The results were favorably impacted by rising gasoline prices and a weaker U.S. dollar.

Excluding the effects of gasoline prices and a softer dollar, Costco’s comparable-store sales for August climbed 5% with U.S. comparable sales up 5%, while international comparable sales were up 7%. For fourth-quarter 2010, the company registered comparable-store sales growth of 4% with U.S. sales up 3% and international sales up 8%.

Total net sales for August jumped 9% to $5.9 billion from $5.4 billion in the same month last year. For the quarter under review, sales increased 8% to $23.6 billion from $21.9 billion delivered in the same period last year.

On a regional basis, Costco registered robust performance in the Midwest, Texas, Los Angeles and the Northwest regions in the United States, and in Korea, Japan and Canada.

Costco, which faces stiff competition from BJ’s Wholesale Club Inc. (BJ) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT), currently operates 572 warehouses, including 416 in the United States and Puerto Rico, 79 in Canada, 32 in Mexico, 22 in the United Kingdom, 9 in Japan, 7 in Korea, 6 in Taiwan and 1 in Australia.

Costco is well positioned to weather the difficult economic environment, given its focus on low prices. Rising gasoline prices coupled with improved consumer spend helped comparable-store sales growth. Moreover, expansion into new markets will continue to boost the top line.

We believe that retailers will continue with their discounting pattern to lure consumers, still grappling with unemployment woes and tight credit market. However, aggressive price reductions in response to stiff competition may depress sales and margins.

COSTCO WHOLE CP (COST): Free Stock Analysis Report

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