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Here's Why Costco Scored Decent Numbers in Holiday Season

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Costco Wholesale Corporation (COST - Free Report) is committed toward ramping up investments in the wake of rising competition from the likes of Dollar Tree (DLTR - Free Report) , Dollar General (DG - Free Report) and Ross Stores (ROST - Free Report) . We believe that the company’s business model and commitment toward opening membership warehouses are anticipated to continue to drive traffic despite the rising popularity of online retailers.

The company has been able to create a niche for itself on the back of growth strategies, better price management, strong membership trends and increasing penetration of e-commerce business. These factors have certainly aided the company to rapidly adapt to the evolving retail ecosystem and sustaining impressive comparable sales run during the holiday season.

This is quite evident from the company’s decent comparable sales trend in the month of November as well December, which is the most crucial part of the year for retailers. Comparable sales rose 9.2% and 6.1% in November and December, respectively.

Certainly, the strategy to sell products at heavily discounted prices has helped Costco to expand their customer base. Moreover, a differentiated product range enables them to provide an upscale shopping experience, resulting in market share gains and higher sales per square foot. It is also steadily expanding e-commerce capabilities. Notably, e-commerce comparable sales advanced 46.1% and 13.6% during November and December, respectively.

Undoubtedly, the company’s growth efforts have been fueling traffic across both the online and brick-and-mortar platforms. However, analysts pointed that any incremental investments or aggressive pricing strategy may hurt margins. Further, we note that SG&A expenses and merchandise costs have been increasing for quite some time now.

We note that shares of Costco have increased 9.7% in a year, compared with the industry’s growth of 7.1%. This Zacks Rank #3 (Hold) company has also fared better than the Zacks Retail-Wholesale sector’s decline of 3.6% during the aforementioned period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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