Costco Wholesale stock likely to be steady gainer, hits 33-year high

Costco Wholesale Corporation (NASDAQ: COST) stock soared to a 33-year high of $247.09 on Friday. In recent years, the stock remained strong and is expected to be a steady gainer over the long term. This is due to robust expansion, increasing gasoline prices, higher comparable store sales and an increase in consumers flocking the stores for its value offerings.

Costco remained one of the few retailers who continue to provide monthly same-store numbers. The company is scheduled to post its monthly numbers on Wednesday. Investors expect the warehouse retailer to post higher comparable store sales for the month of March. For same-store sales, Costco posted a 3.5% growth for the month of February and a 5.2% increase for January.

In contrast, comparable sales growth for the second quarter was 5.4% compared to an 8.4% jump in the previous year quarter. Comps increased by 7.4% in the US and by 0.7% in the International while inched down 0.3% in Canada. This excluded gas deflation, the impact of foreign exchange and some weakening foreign currencies relative to the dollar, as well as revenue recognition.

Majority of the analysts recommended a “strong buy” or “buy” rating with a price target of $243.50 per share. Analysts expect March core comparable-store sales growth in the range of 6% to 8% and reported comps to increase in the range of 5% to 6%. They believe an increase in consumers in their stores and online could boast subscription-renewal rate.

For the second quarter, the company reported a 27% jump in earnings helped by strong store traffic and online merchandise sales, which showed a 20.2% annual growth. In February, net sales moved up 5% after a 7.8% gain in January. The sequential growth deceleration is attributed to adverse weather conditions and the shift in the timing of the Chinese New Year.

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The company operates 770 warehouses during the second quarter. With 535 units, the region comprising the United States and Puerto Rico continues to be the top market. There are 100 warehouses in Canada, 39 in Mexico and 28 in the United Kingdom. Japan, Korea, and Australia have 26, 15 and 10 outlets respectively.

Costco has been facing stiff competition from rivals like BJ’s Wholesale in recent years. Others like Sam’s Club of Walmart (WMT) have improved their position in the sector by investing in technology and other infrastructure, challenging Costco’s dominance. Apart from this, the pressure has been mounting for Costco as e-commerce and a change in the shopping pattern among consumers.

Shares of Costco opened higher on Monday and is trading in the green territory. The stock has risen over 33% in the past year and over 18% in the past three months.

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