What's Aiding Costco (COST) to March Ahead of the Industry?

Costco Wholesale Corporation COST has exhibited an impressive run in the index over the past six months. We noted that in the said time frame, the stock has not only outperformed the Zacks categorized Retail-Discount & Variety industry – which occupies a space in the bottom 32% of the Zacks Classified industries (174 out of the 256) but also the broader sector. In the said period, the stock has increased 8.5%, while the industry gained 0.7%. Meanwhile the broader Retail-Wholesale sector, of which both are part of, advanced 3% in the same time frame.

So, what’s driving the stock to march ahead of the industry? Let’s delve deeper.

We believe that Costco 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, UK, Mexico, Korea and Taiwan.

The company’s strategic endeavors have helped it to post positive comparable-store sales (comps) performance in the past six months. Comps rose 4% in February, following an increase of 7% in January, 3% in December, 1% in November, 2% in October and 1% in September. Net sales were up 8% in February, following an increase of 9%, 5%, 3%, 4% and 3% in January, December, November, October and September, respectively.

What concerns investors a bit was 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 consecutive quarter. Further, stiff competition from BJ’s Wholesale Club and Sam’s Club, a division of Wal-Mart Stores, Inc. WMT, has been a concern.

Nevertheless, we believe Costco’s strategic initiatives will help propel the stock further, 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 in the industry include Burlington Stores, Inc. BURL and Kate Spade & Company KATE both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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%.

Kate Spade delivered an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%.

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Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
Costco Wholesale Corporation (COST): Free Stock Analysis Report
 
Kate Spade & Company (KATE): Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL): Free Stock Analysis Report
 
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