Costco’s Results Show a Spending Uptrend

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Costco Wholesale (NASDAQ:COST) is outperforming the broader market today, motoring higher in the wake of strong second-quarter earnings and notably robust February same-store sales. Sales at stores open at least a year rose by 8% this month, beating the 7.6% increase expected by analysts.

Overall sales were partly helped by higher gas prices. Pump prices have risen about 14% in 2012 and 8% in February. COST keeps its gasoline priced below what traditional filling stations charge in the hopes that what it sacrifices in profit at the pump will translate into more loyal — and frequent — customers at its warehouse stores. So far, the experiment has paid off: Roughly 30% of Costco shoppers who fill up their tanks also  fill up a cart in the store.

In its second-quarter reporting period, COST banked 90 cents per share, a 14% improvement over the previous year and three cents better than the consensus estimate. This was the retailer’s ninth straight quarter of double-digit earnings growth. Year-over-year, COST earnings have grown by 16.2%, versus average earnings growth of 4.8% among broadline retailers.

Today’s earnings surprise comes on the heels of COST taking top honors among special retailers in the American Customer Satisfaction survey. Sure, all Costcos are massive and crowded, and you may have to fight for even the very worst spot in the parking lot, but ultimately, consumers are drawn, presumably, to the quality and pricing of the products and the chain’s dependable nature.

COST shares have risen roughly 18% in the last 12 months, outpacing the 4.5% climb for the S&P 500 Index. A longer-term look at the stock’s technical picture reveals that COST is challenging new all-time-high territory. A solid break through the $88-$89 region would mean uncharted waters for this retail stock. Cautious chartists who have been waiting on the sidelines could make their move into the shares now.

“But wait,” one might argue. “Costco is a warehouse-style retailer where frugal customers go in search of bargains. Doesn’t that mean consumers are still nervous?” Well, as Douglas A. McIntyre noted at 24/7 Wall St., “more people bought something at [Costco] in February than in the same month last year. Whether they were looking for deals is beside the point. Shoppers have become more confident about their financial prospects.” This thinking is supported by improved consumer credit as well as declining consumer debt.

As of this writing, Beth Gaston Moon does not own any shares mentioned here.


Article printed from InvestorPlace Media, https://investorplace.com/2012/02/costcos-results-show-a-spending-uptrend/.

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