With the holiday season in full swing, many market observers turned to Costco (NASDAQ:COST) for clues regarding the consumer economy. Unfortunately, the data turned out to be less than encouraging. November sales for the membership-only big-box retailer came in lower than expected, dragging down COST stock 6% on Thursday. Still, a small window of optimism may exist ahead of the company’s fiscal first-quarter earnings report in December.
On paper, Costco stated that sales for the four weeks ending Nov. 27 — which critically includes Black Friday — rose 5.7% from last year to $19.17 billion. As The Street mentioned, the latest tally represents a downward trek for COST stock. In October, Costco posted year-over-year sales growth of 7.7%. Additionally, in September, growth hit 10.1%.
“Same-store sales for the 13 week period were up 6.4%, Costco said, while U.S. comp sales were up 8.8%,” added The Street contributor Martin Baccardax. “For the four weeks ending on November 27, those figures were 4.3% and 6% respectively.”
Unfortunately, Costco’s underperformance echoed developments at rival retailer Target (NYSE:TGT). On Nov. 16, Target CEO Brian Cornell disclosed that the company saw a “change in shopping behavior in the back half of October leading into November.”
Specifically, Cornell stated that consumers were “working with their budget, shopping very carefully, looking for value, and recognizing they’ve got to start with core staples before they spend dollars in discretionary categories.”
Challenges Abound for COST Stock
Fundamentally, stakeholders of COST stock are focused on the underlying company’s fiscal Q1 report, scheduled for release on Dec. 8. The financial disclosure will cover the three months ending Nov. 30. Therefore, the slowdown in sales will likely affect the overall results. Specifically, covering analysts anticipate earnings of $3.12 per share on revenue of $53.92 billion.
Adding to concerns centers on Costco’s demographic niche. While the open-warehouse retailer appeals to a broad base, Costco’s core consumers tend to be younger, upwardly mobile and wealthy. That the company’s sales dynamics are now mimicking other big-box retailers (which don’t charge membership fees) presents significant concerns. Nevertheless, should economic circumstances normalize, COST stock may be among the first retail investments to recover.
Further, it’s important to point out that during the energy spike earlier this year, many drivers rushed to Costco locations for their lower gasoline prices. As prices declined more recently, this incentive likewise faded.
However, with the global energy crisis still in full swing, pricing can realistically skyrocket again. Cynically, this might benefit COST stock down the line.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.