Costco Unfazed By Tough Retail Scenario, Posts Solid Comps

The euphoria following Costco Wholesale Corporation’s (NASDAQ:COST) upbeat performance in the third quarter of fiscal 2017 is still not over, and this membership warehouse retailer has already given investors another reason to cheer. The company continued with its positive comparable-store sales (comps) performance backed by improved store traffic and average transaction size, consequently sidelining the woes which have gripped the brick-and-mortar retailers for some time now.

Major chains are grappling with sluggish store and mall traffic as consumers choose to shop online from the comfort of their homes. But Costco seems somewhat resilient to the challenging retail backdrop. We believe that the company’s hike in annual membership fees and increased penetration of Citi Visa co-brand card program will also benefit the stock in the near term.

Healthy Comps Performance

Comps for four-week ended May 28, 2017 increased 4.1%, following an increase of 3% in April, 6% in March, 4% in February and 7% in January. The company generated net sales of $9.86 billion in May, up 7% year over year. Notably, net sales increased 5%, 9%, 8% and 9% in April, March, February and January, respectively.

We note that shares of Costco have climbed roughly 12.7% year to date, and has comfortably outperformed the Zacks categorized Retail-Discount & Variety industry’s decline of 0.2%.

Comps for May reflect an increase of 5.2% and 4.9% at the U.S. and Other International locations, respectively, partially offset by 2.2% decline in Canada. Excluding the impact of foreign currency fluctuations and gasoline prices, Costco’s comps for the month under review rose 4.5%. The company recorded comps increase of 4.5%, 3% and 6.4% at the U.S., Canada and Other International locations.

For the 39-week period ended May 28, 2017, Costco reported 3.3% jump in comps, displaying an increase of 3.6%, 4.2% and 0.7% at the U.S., Canada and Other International locations. Net sales for the period came in at $92.11 billion, an increase of 6% from the year-ago period.

Costco, which faces stiff competition from Wal-Mart Stores Inc. (NYSE:WMT) , operates 732 warehouses, comprising 510 warehouses in the U.S. and Puerto Rico, 95 in Canada, 37 in Mexico, 28 in the UK, 25 in Japan, 13 in Korea, 13 in Taiwan, eight in Australia, two in Spain and one in Iceland.

Zacks Rank

Costco currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail space are The Children's Place, Inc. (NASDAQ:PLCE) sporting a Zacks Rank #1 (Strong Buy) and Best Buy Co., Inc. (NYSE:BBY) carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place had delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Best Buy had delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>