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Costco Wholesale Corporation (COST - Analyst Report) witnessed sales slowdown in July as the company delivered comparable-store sales (comps) growth of 4%, following an increase of 6% in June, and missed analysts’ expectations. Comps increased 4% at both the U.S. and international locations.

On the whole, July sales were soft for most retailers as weak traffic played spoilsport. Discount store operator, Fred's, Inc. (FRED - Analyst Report), witnessed a 2.5% rise in comps, while the clothing chain, The Gap, Inc. (GPS - Analyst Report), witnessed a 1% increase. However, specialty retailer, The Cato Corporation , witnessed a 5% decline in comps.  

Coming back to Costco, comparable-store sales for the 48-week period ended Aug 4, 2013 rose 6%, buoyed by an equivalent increase at both the U.S. and international locations.

Excluding the effect of gasoline prices and foreign currency fluctuations, Costco’s comparable-store sales for July rose 5%, reflecting comparable sales growth of 3% at its U.S. locations and 8% at international outlets.  For the 48-week period, the company witnessed comparable-store sales growth of 6%, with U.S. and international sales rising by a similar rate.

Total net sales for July rose 7% to $7.87 billion from $7.36 billion in the year-ago period. Costco’s net sales for the 48-week period increased 8% to $94.91 billion from $87.72 billion in the year-ago period.

Going forward, with high inventory levels for the key back-to-school season, retailers will have to spend more on promotions and come up with value pricing to make the most of the second-best shopping season after the winter holidays. However, discounts and hot deals could eat away margins.

As for Costco, we believe its differentiated product range enables it to provide an upscale shopping experience to its members, resulting in market share gains and higher sales per square foot. Moreover, it continues to maintain a healthy membership renewal rate, which is encouraging.

The company remains committed to opening new clubs in domestic and international markets. The company’s diversification strategy is a natural hedge against risks that may arise in specific markets.

Currently, Costco holds a Zacks Rank #3 (Hold).

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