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Costco Outshines Other Discount Chains, But Concerns Linger

Published on Mar 8 2018 9:34 AM in Retail tagged: US Retail / Dollar Tree / Costco

Costco Outshines Other Discount Chains, But Concerns Linger

Costco Wholesale once again proved itself to be one of the strongest discount chains in retail, but broader fears about the industry are hard to dispel.

Same-store sales - a key benchmark - beat analysts’ estimates in the most recent quarter, helping propel revenue and earnings above Wall Street projections.

Still, the shares dipped more than 1% in late trading, a sign investors need more convincing in the wake of disappointing numbers from Walmart, Target and - earlier on Wednesday - Dollar Tree.

A looming trade dispute, tightening labor markets and e-commerce upheaval have all put investors on edge. Though Costco has largely been immune to an incursion by Amazon, Wall Street has questioned how long that advantage can last.

For now, Costco is projecting strength. Comparable-store US sales have risen every month for more than a year. It’s also adding online offerings and rolling out same-day delivery options, aiming to show that it can be an internet player.

Meanwhile, Walmart’s decision to close 63 Sam’s Club stores could add $1.8 billion to Costco’s revenue, according to Stifel Nicolaus estimates.

Earnings amounted to $1.59 a share in the second quarter, which ended February 18. Analysts projected $1.49, the average of estimates compiled by Bloomberg.

Treasure Hunt

Costco has thrived by touting a combination of low prices and a treasure-hunt shopping experience. Its membership fees also provide a steady stream of profit.

But shareholders need more convincing. Costco’s stock fell as low as $185.25 in late trading. It had been up less than 1% this year through Wednesday’s close.

Dollar Tree rattled the market earlier on Wednesday when its laid out a disappointing outlook. Shares of the discount chain tumbled 14%, their worst one-day drop since 2009.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine. 

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