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Why Costco (COST) is a Must-Have Retail-Discount Store Stock

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The strategy to sell products at discounted prices has been helping players in the Retail – Discount Stores industry to attract customers, who have been seeking both value and convenience. Under the prevailing circumstances, people in the low-to-middle income groups have been showing preference for discount stores. In an attempt to compete better with pure e-retailers, industry participants have been strengthening digital ecosystem as well as boosting shipping and delivery capabilities.

Among a host of renowned stocks in the industry, we are focusing on Costco Wholesale Corporation (COST - Free Report) . This Issaquah, WA-based company has emerged as a viable option for bargain hunters looking for essentials and other discretionary purchases. Costco stands to benefit from its ability to draw traffic through strategic pricing along with robust membership model.

Here’s a Short Analysis

Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Its growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Cumulatively, these factors have been aiding in registering impressive sales numbers.

The company’s net sales rose 16.9% to $18.92 billion for the retail month of June — the five-week period ended Jul 4, 2021 — from $16.18 billion in the last year. This followed an improvement of 24.2%, 33.5% and 17.6% in the months of May, April and March, respectively. Comparable sales for the month of June jumped 14.1%, following an increase of 22.8%, 32.5% and 16% in the months of May, April and March, respectively.

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Undoubtedly, Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or at stores. We note that e-commerce comparable sales surged 20.8% during the month of June. The metric had increased 12.1%, 20.5% and 57.7% in the months of May, April and March, respectively. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

Costco’s acquisition of Innovel Solutions, a leading provider of third-party end-to-end logistics solutions — now called Costco Logistics — has boosted its e-commerce capabilities and aids it in selling "big and bulky" items.

Price Performance

The tag “all-weather stock” suits Costco as the company has weathered multiple market gyrations and still delivered returns to investors. This operator of membership warehouses has exhibited a decent run on the bourses in the past three months. Thanks to its operational initiatives — focus on expanding customer reach, cost optimization and strategic investments — the stock has outpaced the industry and the Retail-Wholesale sector. In the said period, shares of Costco have advanced about 12.6% compared with the industry’s growth of 8.2%. Meanwhile, the sector rose 0.1%.

Bottom Line

Costco’s business model and commitment toward opening membership warehouses will continue to drive traffic, and in turn revenues. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current financial year sales and earnings suggests growth of 15.8% and 18%, respectively, from the year-ago period.

3 More Notable Stocks in the Industry

Target (TGT - Free Report) has a long-term earnings growth rate of 13.3%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General (DG - Free Report) has a long-term earnings growth rate of 11.3%. It presently carries a Zacks Rank #1.

Burlington Stores (BURL - Free Report) has a trailing four-quarter earnings surprise of 74.7%, on average. The stock sports a Zacks Rank #1.