After the close last night, Costco (COST 210.09, +0.19, +0.09%) issued December comparable sales results which once again looked quite solid, with core sales (which exclude more volatile gasoline sales and FX impacts) up 7.0%, beating the 6.4% expectation. However, so far the stock is trading moderately lower today following a 10% jump in shares over the past few weeks.
The run up in the stock
ahead of the comps report may have taken some of vigor out of the positive
news. Its comparable sales growth did slip a bit from last month. This was possibly related to November being an
exceptionally strong month (core +10.1%) with an earlier Thanksgiving.
Outside of the very impressive November results, COST's December comparable sales growth is generally in-line with its recent performance. For instance, in October, COST reported core comps of +6.6%, following +6.2% in September and +8.0% in August. The average of these three months is +6.9%, virtually matching COST's December number.
Furthermore, COST continues to outpace its competitors by a considerable margin. Before the open today, Target (TGT) reported November/December comps of +5.7%, driven by strong store traffic. While solid, that still lags behind COST. Furthermore, when Wal-Mart issued its Q3 earnings on November 15, it reported that Sam's Club -- perhaps COST's closest competitor -- experienced comp growth of 3.2%. Lastly, BJ Wholesale's (BJ) Q3 comps were up 1.9% in Q3. By comparison, COST's comparable sales were up a much more robust 8.8% in its last quarter.
Drilling down more on its December sales results, traffic was up 5.6% on both a U.S. and worldwide basis, with the average transaction up 0.5% for the month. Its e-commerce channel had another strong showing, jumping by 13.6%. This was a considerable cool-off compared to the +46.1% mark seen in November. Again, the earlier Thanksgiving this year provided a significant positive impact in terms of yr/yr growth for November.
In terms of product categories, food and sundries were a standout, up mid-to-high single digits, led by candy and tobacco. Another strong category was softlines, also up mid-to-high single digits, with apparel and housewares seeing solid growth.
All in all, it was a good report from COST. As its next earnings report approaches (confirmed for March 7), the key question is whether it has reigned in merchandising costs. As some may recall, in 1Q19 (reported December 13), higher merchandising costs pressured its margins as gross margin slid by 50 basis points to 10.7%. Investors homed in on this, along with a modest top-line miss, driving shares sharply lower in the several days that followed its earnings report.