Costco (NASDAQ: COST) has been one of many greatest pandemic retail winners. The warehouse membership operator’s gross sales have surged in 2020, though it did not spend money on curbside pickup or different omnichannel methods that will’ve raised prices.
The sturdy efficiency continued into November — or at the very least the primary three weeks of the month. Nonetheless, Costco stock pulled again modestly after the November gross sales launch, providing a shopping for alternative for long-term traders who need to personal this high-quality retailer.
November at a look
Costco generated gross sales of $15.67 billion final month, up 15.1% from $13.62 billion a 12 months earlier. Comparable gross sales elevated 13.4% 12 months over 12 months, with double-digit beneficial properties in all the firm’s main areas.
Costco warehouse. ” src=”https://g.foolcdn.com/picture/?url=httpspercent3Apercent2Fpercent2Fg.foolcdn.compercent2Feditorialpercent2Fimagespercent2F603670%2Fdiscount-retailers-costco-store-cost.jpg&w=700″/>
Picture supply: Costco Wholesale.
Excluding the profit from a weaker greenback and the headwind from decrease fuel costs, Costco‘s comp gross sales development would have been a bit stronger at 14.6%. That represented a slowdown relative to the corporate’s adjusted comp gross sales development of 16.9% in September and 16.5% in October. Costco‘s November gross sales efficiency additionally fell barely in need of the analyst consensus, contributing to the stock’s pullback.
Persevering with latest traits, comp gross sales for meals and sundries elevated by greater than 20% final month. Recent meals gross sales grew even quicker. Hardlines and softlines — Costco‘s different important merchandise classes — posted development within the mid-teens. These gross sales beneficial properties offset one other double-digit comp gross sales decline for Costco‘s ancillary companies. Decrease gasoline demand and a pointy drop in meals courtroom gross sales are driving that weak spot.
A story of two months
One attention-grabbing side of Costco‘s November gross sales efficiency is that gross sales development slowed fairly dramatically within the last week of the interval (Thanksgiving week), particularly within the U.S. This solely got here to gentle due to a quirk in Costco‘s fiscal calendar. The primary quarter of its 2021 fiscal 12 months solely has 12 weeks and due to this fact ended every week earlier than the ultimate day of the November fiscal month.
For the 12-week quarter, Costco‘s adjusted comp gross sales elevated 17.1%. That is larger than the 16.8% comp gross sales achieve it reported for the primary 9 weeks of the quarter, implying that Costco‘s comp gross sales development accelerated to round 18% for the primary three weeks of November. For the complete three-month interval, although, adjusted comp gross sales elevated 16%. (Within the U.S., adjusted comp gross sales rose 17% for the 12-week fiscal quarter however solely 15.7% for the complete three months.)
Comp gross sales development seemingly slowed to a mid-single-digit tempo throughout Thanksgiving week to supply such a big discrepancy between the 12-week and 13-week gross sales figures. Analysts traced this to slower development in hardlines gross sales, notably for big-ticket objects like shopper electronics and home equipment.
The week of Thanksgiving (and Black Friday) usually brings a discount-fueled surge in gross sales of such objects. Nonetheless, retailers together with Costco have tried to unfold promotions all through the vacation season this 12 months to handle visitors for social distancing. Provide shortages additionally seemingly constrained Costco‘s shopper electronics gross sales in the course of the vacation week.
Notably, Costco reported that comp visitors elevated 5.7% worldwide and eight.4% within the U.S. throughout November, accelerating from October. This visitors development and the 20%-plus comp gross sales beneficial properties for meals and sundries and recent meals appear to substantiate that decrease vacation gross sales of big-ticket objects drove the modest slowdown in gross sales development for the month.
Momentum stays intact
Costco‘s November gross sales outcomes present that the warehouse membership large continues to be rising quickly and gaining market share in key food-related frequency classes. A lot of that market share development will seemingly stick, as Costco gives decrease costs than most retailers and enjoys extraordinarily excessive buyer loyalty. Traders should not be apprehensive about volatility in gross sales of big-ticket objects throughout Thanksgiving week, notably given the pandemic-related limitations on visitors and provide chains.
Even after retreating barely on Thursday and Friday, Costco stock trades at a premium valuation of 38 occasions ahead earnings. Nonetheless, the corporate ought to have the ability to develop into that valuation over time. For traders with a very very long time horizon, Costco stock nonetheless seems like a stable funding alternative.
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Adam Levine-Weinberg has no place in any of the stocks talked about. The Fintech Zoom owns shares of and recommends Costco Wholesale. The Fintech Zoom has a disclosure coverage.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.