What happened
Shares of Costco Wholesale (COST -0.12%) were moving lower today after the warehouse retail giant issued a disappointing March sales report.
Costco said net sales in the five weeks ended April 2 rose just 0.5% to $21.71 billion. Comparable sales, adjusting for fuel prices and currency exchange, were up 2.6% and rose just 0.9% in the U.S., indicating that rising interest rates and a weakening economy finally seem to be impacting Costco, one of the most resilient U.S. retailers. Without adjustments, comparable sales were down 1.1% globally, or 1.5% in the U.S.
As of 10:22 a.m. ET, the stock was down 3.6%.
Image source: Costco.
So what
The monthly sales report showed the company's slowest U.S. comparable sales growth since April 2020, the beginning of the pandemic.
Costco also reported that sales from e-commerce, adjusted for fuel prices and currency exchange, were down 11.6%. Since e-commerce is a key growth area for the company, that also signaled trouble for the company.
Considering the impact of inflation, the results seem to indicate that volume sales fell at the retailer, which could be due to consumer spending shifting to services like travel and restaurants or consumers avoiding big-ticket purchases due to high inflation and the threat of a recession.
Now what
One monthly sales report isn't a reason for investors to change their thesis on Costco, but it could signal trouble ahead for the stock, especially as shares are expensive, trading at a price-to-earnings ratio of 35.
The good news for investors is that most of the company's profits come from its membership income, which should be more stable in the current economy, but investors should expect a decline in operating margin based on the weak comparable sales.
