On Wednesday, we expect Costco Wholesale to release its January sales numbers. The warehouse club has always enjoyed a loyal following for more than just its free samples (‘memba those?) Demand for its goods and services has remained a notable retail theme over the years, including at the start of the pandemic when some consumers bum rushed the place to buy up paper goods and “hanitizer.” Over the past handful of months, Costco has weathered whatever storm the pandemic threw its way. Most recently, the company has gotten my attention and nods for its handling of the supply chain crunch by chartering its own water craft to help ease the pressure.
This morning, Joseph Feldman and team over at Telsey Advisory Group shared a few strengths and thoughts ahead of the company’s release. Their overall thesis included maintaining an Outperform rating and 12-month price target of $610. “Costco should remain a share gainer, with its solid sales, high membership renewal rates (about 113.1MM members), and square footage growth of low-single-digits,” wrote the team. “In fiscal 2022, Costco should generate solid EPS growth, driven by a high single-digit comp, mid-single-digit-to-high-single-digit membership fee income growth, healthy digital growth, and lapping COVID-19 related costs.” Here are a few notable things about Costco this time around that the team also mentions in the update.
Gasoline: If you’re a Costco member who’s also lucky enough to have a Costco gas station nearby, you probably already know the benefits discount petrol can bring to your wallet. Like all things, gasoline demand ebbs and flows, but in the case of the past few weeks, there is probably more flow than ebb. Earlier in the month, the Census Bureau revealed that in December, consumers visited gas stations en masse to the tune of nearly $55 billion, which is sure to have had some kind of influence on this month. Feldman’s team breaks it down for us like so: “In January, gas prices rose an average of about 39% year-over-year, which we estimate should boost the total comp by 390 basis points. Higher gas volumes related to more driving also should support sales.”
Trends: Anyone who’s ever set foot in a Costco and strolled around a bit knows full well that the place is typically stocked up with everything and then some. It is also well known that Costco revolves and rotates its merch depending upon seasons and trends. Feldman and his team assessed the current state of Costco merch and foresees the following, “We expect Non-Consumables to outperform, with strength in home furnishings, fitness, and winter products. Ancillary businesses, such as gas and food court, should remain solid. We project Food & Sundries and Fresh Foods to be positive, helped by the combination of increased at-home consumption, partly due to the Omicron variant and inflation.”
More Customers, Bigger Spending: With more people seeking Costco out, whether online or in person, traffic overall is up. Feldman’s team expects traffic at Costco to be up 3.5%, and the average ticket to be up 4.7% for January. “ We believe consumers continue to visit stores more regularly, although Omicron may have caused a short-term drag, and spend more per trip as the assortment satisfies all environments,” writes the team.
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The Digital Factor: With so many of us online, it’s no surprise that digital efforts reap big rewards. However, in the case of Costco, where digital sales exploded, Feldman and the team write, “We project flat digital sales growth vs. 106.7% last year. Our forecast assumes gains from improved digital marketing, including online-only promotions, and an expanded product assortment. We also expect strong growth of Instacart same-day sales, which is a part of store sales.”
Because Costco continues to enjoy a position of popularity among consumers, it will be interesting to see how they did in January and while we wait on their report, we’ve got Feldman and team’s notes to keep us warm.