Yahoo Finance Here's Why Costco (COST) Stock Warrants Your Attention
Costco Wholesale Corporation COST, a recognized name in the retail discount space, has exhibited a decent run on the bourse so far in the year. Due to its operational initiatives — a customer-centric approach, an emphasis on the membership program and a focus on value offerings — the stock has outpaced the Zacks Retail-Discount industry. In the said period, shares of this Zacks Rank #3 (Hold) company have increased about 9.1%, while the industry has risen 2.6%.
Let’s Delve Deep
This Issaquah, WA-based company continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Costco's distinctive membership business model and pricing power set it apart from traditional players. Amid rising prices, low-to-middle-income consumers have preferred discount stores over conventional retailers. Cumulatively, these factors have been aiding Costco in registering decent sales numbers.
Costco’s net sales increased 3% to $17.85 billion for the retail month of April — the four-week period ended Apr 30, 2023 — from $17.33 billion reported last year. This followed improvements of 0.5% and 4.7% in March and February, respectively. Comparable sales for the retail month of April increased 1.4%.
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Costco is gradually adopting the omnichannel mantra to provide a seamless shopping experience. Its acquisition of Innovel Solutions, a leading provider of third-party end-to-end logistics solutions — now called Costco Logistics, has boosted its e-commerce capabilities and enabled it to sell "big and bulky" items.
The company has been gradually expanding its e-commerce capabilities in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.
Costco also remains committed to opening new clubs in the domestic and international markets. In our view, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets. After opening 13, 20 and 23 net new warehouses in fiscal 2020, 2021 and 2022, respectively, Costco plans to open 24 net new units in fiscal 2023.
We foresee an improvement in membership fees as new warehouse openings ramp up. Membership fees increased 6.2% to $1,027 million in the second quarter of fiscal 2023.
Wrapping Up
The strategy to sell products at discounted prices has helped Costco draw customers who have been seeking both value and convenience amid rising prices. We believe a growing customer base and high renewal rates should fuel sales. The Zacks Consensus Estimate for Costco’s current financial-year sales and EPS suggests growth of 6.5% and 9.2%, respectively, from the year-ago reported numbers.
3 Stocks Looking Red Hot
Here we have highlighted three better-ranked stocks, namely Kroger KR, The TJX Companies TJX and General Mills GIS.
Kroger, which operates as a supermarket operator, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.2% and 14.2% from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 7.5%.
The Zacks Consensus Estimate for General Mills’ current financial-year sales and earnings suggests growth of 6.3% and 7.4% from the year-ago period. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.
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General Mills, Inc. (GIS) : Free Stock Analysis Report
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Costco Wholesale Corporation (COST) : Free Stock Analysis Report
