Yahoo Finance Here's Why Costco (COST) Is Marching Ahead of the Industry
In the ever-evolving retail landscape, Costco Wholesale Corporation COST stands out as a key player in the retail discount space, showcasing impressive performance in the stock market year to date. With a strategic focus on customer-centric initiatives, a robust membership program and a commitment to delivering value, Costco's stock has surged ahead of the Retail-Discount industry.
Despite market challenges, Costco shares, currently carrying a Zacks Rank #3 (Hold), have seen a remarkable rally of approximately 29.5% year to date, outpacing the industry's rise of 7.1%.
A Leading Warehouse Retailer
This Issaquah, WA-based company continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. The company's distinctive membership business model and pricing power set it apart from traditional players. Low-to-middle-income consumers have preferred discount stores over conventional retailers to meet their day-to-day needs. Cumulatively, these factors have been aiding Costco in registering decent sales numbers.
Costco’s net sales increased 4.5% to $18.53 billion for the retail month of October from $17.73 billion last year. This followed an improvement of 6% and 5% witnessed in September and August, respectively. Comparable sales for the retail month of October — the four-week period ended Oct 29, 2023 — rose 3%. This followed an increase of 4.5% and 3.4% registered in September and August, respectively.
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Impressive Membership Growth
Costco’s total paid members have been rising. Its growing customer base and high renewal rates have been fueling sales. Membership fees increased 13.7% to $1,509 million in the fourth quarter of fiscal 2023. The company ended the quarter with 71 million paid household members.
We expect Costco’s total paid members to be approximately 73.4 million at the end of fiscal 2024, representing an increase of 3.4% from fiscal 2023. We also estimate a 3.7% jump in net sales and a 3.6% rise in total membership fees for fiscal 2024.
Strategic Market Presence and Expansion
Costco's strategic approach involves identifying untapped markets and tailoring offerings to meet customer preferences, allowing it to establish a solid presence in the retail sector. This retail bellwether has been steadily expanding its footprint through new club openings in the domestic and international markets. Costco also operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.
Costco opened 23 net new units in fiscal 2023. We foresee an improvement in membership fees as new warehouse openings ramp up. As of Nov 1, 2023, Costco operates 862 warehouses, including 592 in the United States and Puerto Rico, 107 in Canada, 40 in Mexico, 33 in Japan, 29 in the United Kingdom, 18 in Korea, 15 in Australia, 14 in Taiwan, five in China, four in Spain, two in France, and one each in Iceland, New Zealand and Sweden.
Conclusion
Costco's promising future is underpinned by its favorable product mix, steady store traffic, pricing power and robust liquidity position. Emphasizing a strategy focused on offering products at discounted prices, Costco has successfully attracted customers seeking both value and convenience amid rising prices. Our estimated revenue improvement of 3.7% for fiscal 2024 underscores its growth trajectory and resilience in the dynamic retail environment.
3 Stocks Looking Red Hot
Here, we have highlighted three better-ranked stocks, namely Target TGT, The Kraft Heinz Company KHC and Kroger KR.
Target, a general merchandise retailer, currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Target’s current financial-year earnings suggests growth of 38.5% from the year-ago reported numbers. TGT has a trailing four-quarter earnings surprise of 30.8%, on average.
Kraft Heinz, which manufactures and markets food and beverage products, currently has a Zacks Rank #2. KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Kroger, which operates as a food and drug retailer, currently carries a Zacks Rank #2. Kroger has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and earnings suggests growth of 1.6% and 6.9%, respectively, from the year-ago reported numbers.
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Target Corporation (TGT) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
Kraft Heinz Company (KHC) : Free Stock Analysis Report
