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Costco's Strategic Initiatives Bode Well for the Long Run

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We believe that Costco Wholesale Corporation (COST - Free Report) prevails as one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. The company’s strategy to sell products at heavily discounted prices has helped it to remain on growth track as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities.

A differentiated product range enables the company to provide an upscale shopping experience for members, resulting in market share gains and higher sales per square foot. Moreover, Costco continues to maintain healthy membership renewal rate. Further, it is gradually expanding eCommerce capabilities in the U.S., Canada, U.K., Mexico, Korea and Taiwan.

We noted that so far this year, Costco’s shares have increased 6.9%, while the Zacks categorized Retail-Discount & Variety industry – which occupies a space in the bottom 36% of the Zacks Classified industries (164 out of the 256) – has declined 2.6%.

The company’s strategic endeavors have helped it to post positive comparable-store sales (comps) performance. Comps for March increased 6%, following an increase of 4% in February and 7% in January. Notably, net sales increased 9%, 8% and 9% in March, February and January, respectively.

What concerns investors a bit is the company’s second consecutive quarter of negative earnings surprise as it reported second-quarter fiscal 2017 results. Total revenue also fell short of the Zacks Consensus Estimate for the ninth straight quarter. Further, stiff competition from BJ’s Wholesale Club and Sam’s Club, a division of Wal-Mart Stores, Inc. (WMT - Free Report) , has been a concern.

Nevertheless, we believe Costco’s strategic initiatives will help propel the stock, unless an unprecedented event derails the same. Given the pros and cons embedded the stock currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks include Burlington Stores, Inc. (BURL - Free Report) and The Children's Place, Inc. (PLCE - Free Report) both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores delivered an average positive earnings surprise of 26.3% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 8%.

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