Costco Wholesale Corporation’s (COST - Free Report) third-quarter fiscal 2020 results, slated to release on May 28, are likely to reflect strength in e-commerce sales. Incidentally, the company’s e-commerce sales have been showcasing a sharp increase, courtesy of a loyal customer base that shopped for essentials from home amid the lockdown. E-commerce comparable sales soared 85.7% in April. This follows an increase of 48.3% in March.
Costco’s overall sales increased in March as consumers stocked up food and essentials in the wake of the coronavirus outbreak. We note that comparable sales for the month rose 9.6%, while net sales jumped 11.7%. However, comparable sales fell 4.7% in April as stay-at-home orders, social distancing and some mandatory closures resulted in lower traffic and soft sales at warehouses. Additionally, net sales declined 1.8% in the month. Management highlighted that sales for April were adversely impacted by limited service in Travel and Food Courts, closures of most of Optical, Hearing Aid and Photo departments, and reduced volumes and price deflation in the Gasoline business.
Nonetheless, strength in e-commerce sales, courtesy of the coronavirus-led stock loading, provided some respite. Costco has been rapidly adopting the omnichannel mantra to provide a seamless shopping experience, whether online or in stores. To this end, its CostcoGrocery delivery service, collaboration with Instacart and acquisition of Innovel Solutions are noteworthy. Markedly, the company has been steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia. The role of such initiatives becomes more vital in situations like these, wherein social distancing has led to increased online shopping.
Clearly, the coronavirus-led stockpiling of essential items along with consumers’ increased shift to online purchasing seems to have worked well for Costco’s sales in the quarter under review. Even other retailers like Walmart (WMT - Free Report) , Kroger (KR - Free Report) and Target (TGT - Free Report) are seeing increased stockpiling trends amid the crisis.
Meanwhile, the Zacks Consensus Estimate for Costco’s third-quarter revenues is pegged at $37,516.9 million, indicating an improvement of 8% from the prior-year quarter’s reported figure. The consensus mark for earnings has decreased 5.4% over the past 30 days to $1.91 per share. Nonetheless, the figure suggests growth of roughly 1.1% from the figure reported in the year-ago period.
Costco’s growth strategies, better price management and decent membership trends have been driving the top line. However, analysts pointed out that any deleverage in the SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might compress margins. Further, increasing competition based on price, products and speed to market cannot be ignored. (Read More: Costco to Report Q3 Earnings: What Awaits the Stock?)
Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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