Please ensure Javascript is enabled for purposes of website accessibility

Costco Delivers Stunning January Sales

By Adam Levine-Weinberg - Feb 4, 2021 at 9:37AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The top warehouse club operator's sales growth accelerated following a modest slowdown during the holiday shopping period.

While the COVID-19 pandemic brought many retailers to their knees, Costco Wholesale (COST 1.92%) has reported strong sales growth for much of the past year. Consumers shifted spending toward Costco as they spent more time at home and looked to consolidate shopping trips.

Costco's sales growth moderated beginning Thanksgiving week and continuing through the end of December. That caused some investors to worry that the warehouse club giant was losing its momentum. Costco dispelled that notion on Wednesday afternoon, reporting excellent sales results for the month of January.

A modest holiday slowdown

Costco's adjusted comparable sales (excluding changes in gasoline prices and currency fluctuations) jumped nearly 17% in September and October, the first two months of the company's 2021 fiscal year. Growth stayed strong in the first three weeks of November, but abruptly slowed to a mid-single-digit pace during Thanksgiving week. For the five-week retail month of December, adjusted comp sales rose 10.9%.

The entrance to a Costco warehouse

Image source: Costco Wholesale.

However, this slowdown shouldn't have surprised investors. A number of states, cities, and countries implemented shopping restrictions last fall as COVID-19 case numbers skyrocketed around the world. Furthermore, the period between Thanksgiving and year-end tends to spark the highest retail traffic, magnifying the impact of store capacity restrictions. Finally, many retailers encouraged consumers to make their holiday purchases as early as October to avoid a crush of traffic between Black Friday and Christmas.

Sales growth bounced back in January

Sure enough, Costco regained its sales momentum as soon as the holiday period ended and the calendar flipped to 2021. For the four-week period ending on Jan. 31, comparable traffic returned to growth, including a solid 5.1% increase in the U.S. Adjusted comparable sales surged 15.7% year over year, with double-digit growth in most markets. Total sales grew 17.9% to $13.64 billion. Costco's e-commerce sales more than doubled, compared to growth of approximately 62% in December.

Costco reported broad-based sales strength across all merchandise categories in January. Virtually all categories of food continued to sell extremely well. Furthermore, comparable sales surged 30% year over year in the hardlines department, driven by strong demand for seasonal merchandise, sporting goods, garden supplies, and big-ticket items (including electronics).

Notably, Costco achieved its strong January sales results even though sales for its ancillary businesses fell again. The pandemic has reduced gasoline demand and wreaked havoc on Costco's popular food courts and its travel unit. The company's ability to overcome the headwind from its ancillary business lines highlights the strength of demand within its core merchandise categories.

Don't worry about tougher comparisons

During the company's monthly recorded sales call on Wednesday afternoon, Costco executive David Sherwood noted that the retail giant will face tougher year-over-year comparisons beginning later this month. (Costco's sales surged in the early days of the pandemic last year, as consumers stocked up on a wide variety of essentials.)

Investors shouldn't worry, though. Considering Costco's strong sales momentum, the company seems likely to report high single-digit comp sales growth even as comparisons get tougher for the next two months. (By contrast, growth could exceed 20% in April, when Costco will face a very easy year-over-year comparison.) As the pandemic fades over the next year, Costco's ancillary businesses should recover, partially offsetting any headwinds in the core business.

Looking further ahead, Costco could benefit from lower costs once it can discontinue pandemic-related safety measures. It could also raise membership fees as soon as next year, boosting the bottom line by hundreds of millions of dollars annually. (It last increased membership fees in 2017 and tends to boost them every five to six years.)

Costco stock certainly isn't cheap. It currently trades for more than 35 times the company's estimated earnings for fiscal 2021. But considering the company's deep moat, excellent sales trends, and long-term margin expansion potential, Costco stock looks like a great choice for long-term investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$437.71 (1.92%) $8.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.