Business model

Costco (COST) banking on business model and pricing power

Costco Wholesale Corporation COST continues to be one of the dominant warehouse retailers due to the breadth and quality of merchandise offered. The company’s distinctive membership business model and pricing power sets it apart from traditional players. Amid soaring inflation, low-to-middle income consumers preferred discount stores to conventional retailers.

This Issaquah, WA-based company stands to benefit from its ability to drive traffic through strategic pricing, a robust membership model and growing e-commerce penetration. Cumulatively, these factors have helped Costco post impressive sales numbers.

Net sales rose 10.1% to $21.46 billion for the month of September from $19.50 billion last year. This followed an increase of 11.4% in August and 10.8% in July. September comparable sales jumped 8.5% after increases of 10.1% and 10% in August and July, respectively.

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Costco is gradually embracing the omnichannel mantra to deliver a seamless shopping experience. To boost its online sales, the company launched grocery delivery services in collaboration with Uber Technologies in July 2021. These services allow members to have their groceries delivered on-demand within hours through the Uber and Uber mobile apps. Eats.

Additionally, Costco’s acquisition of Innovel Solutions, a leading provider of end-to-end third-party logistics solutions – now called Costco Logistics, enhanced its e-commerce capabilities and enabled it to sell “wholesale and bulky.”

The company has gradually expanded its e-commerce capabilities to the United States, Canada, United Kingdom, Mexico, Korea, Taiwan, Japan, and Australia. Note that comparable e-commerce sales increased by 0.7% in September. This followed increases of 3.9% and 10.2% in August and July, respectively.

Wrap

Inflationary pressure on a range of products is pinching consumers, who are now flocking to discount stores to deal with the same. The strategy of selling products at discount prices has helped industry players, such as Costco, attract customers who were looking for both value and convenience in a rising price environment.

We believe a growing customer base and high renewal rates should fuel sales. Zacks’ consensus estimate for Costco’s current-year sales and EPS suggests growth of 8.4% and 10.2%, respectively, from numbers reported a year ago.

Over the past year, shares of this No. 3 Zacks (Hold) company have appreciated about 4.4% against a 4.6% decline in the sector.

3 stocks looking for Red Hot

Here, we have highlighted three top-ranked stocks, namely Ultimate beauty ULTA, Dillard’s DDS and Kroger KR.

Ulta Beauty, which operates as a beauty retailer, boasts a Zacks #1 (Strong Buy) rating. Ulta Beauty has a last four quarter earnings surprise of 32.8% on average. ULTA has an expected EPS growth rate of 13.9% over three to five years. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for Ulta Beauty’s current fiscal year sales suggests growth of 13.7% from the figure reported a year ago.

Dillard’s, which operates large retail stores, carries a No. 2 (purchase) Zacks rank. The company has a four-quarter earnings surprise of almost 215%, on average.

Zacks’ consensus estimate for Dillard’s current year sales suggests growth of nearly 4.8% over the prior year period.

Kroger, which operates as a grocery retailer, currently carries a Zacks Rank #2. Kroger forecasts an EPS growth rate of 11.7% over three to five years.

Zacks’ consensus estimate for Kroger’s current-year revenue and EPS suggests growth of 7.8% and 10.3%, respectively, from numbers reported a year ago. KR has a four-quarter earnings surprise of 15.7% on average.

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