While Costco Wholesale (NASDAQ:COST) suffered from slowing sales growth for much of 2016 and early 2017, the warehouse club giant has bounced back in a big way over the past year. During that period, Costco has routinely posted mid-high single-digit adjusted comp sales growth.
Last month, Costco posted yet another strong sales performance despite headwinds from the timing of Easter and a tough year-over-year comparison. This may indicate that the company is gaining new customers in the wake of Walmart (NYSE:WMT) closing roughly 10% of its domestic Sam's Club warehouse locations.
A pivotal month
During the first half of fiscal 2017 -- the period between September 2016 and February 2017 -- Costco reported modest comparable sales growth of 2%, excluding the impact of gasoline price fluctuations and exchange rate changes. (All comp sales results referenced here will include these adjustments, unless otherwise noted.) In the U.S. -- home to more than two-thirds of the company's warehouses -- comp sales also rose 2%.
By contrast, Costco's sales growth accelerated last March, with comp sales up 5% worldwide, including a 6% increase in the U.S. Even after accounting for an estimated 1% to 1.5% sales bump from the timing of Easter, there was a clear change in Costco's sales trend between February and March of last year. This uptick in sales growth has continued virtually uninterrupted since then.
This is significant because it means that Costco is just beginning to lap the period of stronger growth that began in March 2017. As a result, it wouldn't have been surprising if Costco's comp sales growth had started to decelerate last month. That's not what happened, though.
The numbers are in -- and they look good
Last month, Costco's revenue surged 10.9% year over year, reaching $12.92 billion. Comp sales rose 5.8%, including a 6.7% increase in the U.S., a 2% increase in Canada, and 5.4% growth in the rest of the world.
Management noted that there was one fewer shopping day in the five-week retail month of March this year due to the timing of Easter. Without this headwind, comp sales growth would have been approximately 1.0 to 1.5 percentage points stronger. That puts the "adjusted" comp sales growth figure for March at around 7%, slightly better than the 6.6% increase the company logged during the previous six-month period.
Within the U.S., Costco saw the strongest comp sales growth in the Southeast, Midwest, and Northwest regions. Mexico, Japan, and the U.K. were the top-performing international markets. Costco reported strong sales results in virtually all of its merchandise categories, but hardlines remained a standout, driven by stellar growth in the company's appliance business.
The Sam's Club effect?
Like many other best-in-class brick-and-mortar retailers, Costco Wholesale seems to be gaining sales momentum as rivals close stores. For example, while Costco has broadened its appliance offerings recently, the rapid downsizing of longtime industry leader Sears Holdings is also helping Costco achieve outsized sales growth in appliances.
Even more significantly, Walmart decided back in January to close 63 Sam's Club warehouses in the U.S. and Puerto Rico -- roughly 10% of Sam's Club's domestic locations. Sam's Club is Costco's biggest direct competitor in the warehouse club business. Thus, over time, Walmart's decision to downsize the chain significantly should lead to more business for Costco.
The Midwest was particularly hard hit by Sam's Club closures, with 18 warehouses in Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin shutting their doors for good. Sam's Club also pulled out of Washington and Alaska entirely, closing six locations across those two states. This probably contributed to the Midwest and Northwest being two of Costco's best domestic regions last month.
Obviously, March is just one month. However, the fact that Costco was able to post yet another big increase in comparable sales last month -- despite facing a fairly tough year-over-year comparison -- suggests that the company is well positioned to keep posting strong sales growth for the foreseeable future.