On the surface, the number is more than a little alarming. Costco Wholesale (COST -0.12%) reported a mere 0.5% year-over-year sales increase for March -- the weakest top-line improvement seen since the COVID-19 pandemic spread across the world in April 2020. The slowdown also extends an already long streak of waning growth. The apparent trend, of course, bodes poorly for the company's future. That's why Costco stock abruptly fell when March's sales-growth figure was reported on Thursday.
As the old adage goes, there's more to the story. The pullback following last month's revenue report is actually a buying opportunity because bigger-picture sales are still growing nicely. March's lackluster growth just comes with a major footnote.
The slowdown was inevitable
Costco is one of the (very) few remaining retailers to still provide monthly sales data. But more information isn't necessarily better for shareholders if those investors don't keep things in perspective.
To this end, March's companywide 0.5% year-over-year sales growth (not to be confused with same-store sales) is admittedly anemic. It's also a comparison, however, to a very high bar set by sky-high sales growth in March of last year -- growth made all the more impressive by a major sales improvement in March 2021. Indeed, strong sales growth from March 2020 qualifies the next couple of March growth figures as downright heroic in and of themselves. The graphic below tells the tale.
Data source: Costco Wholesale. Chart by author. Sales figures are in billions of dollars.
Perhaps this will help keep things in perspective: This past March's top line of $21.7 billion is a hefty 40.1% higher than the pre-COVID March 2020 sales figure of $15.5 billion.
That rapid sales growth between 2020 and 2022 is of course attributable to the COVID-19 pandemic. Consumers needed a means of buying more groceries because they were eating out less. Although restaurants started drawing crowds again as early as 2021, plenty of people were content to continue cooking at home. Last year's inflation surge also inspired consumers to curb their restaurant spending, even if it meant paying higher prices for groceries themselves.
But it was never a dynamic that was going to persist. The world is essentially moving back to its pre-pandemic norms. Inflation is cooling as well. Costco is simply easing back to its pre-pandemic growth trajectory, which unfortunately means a more pronounced, comparative slowdown.
Data source: Costco Wholesale. Chart by author.
I can see these ugly sales comparisons lasting through July, too. That's when the retailer's sales data will finally cease being compared to the worst of inflation's bite and the pronounced slowdown in grocery buying.
The market's missing this detail about Costco's sales
Don't misunderstand. Investors should keep a close eye on Costco's monthly sales reports for the remainder of this year. Ditto for same-store sales. It's certainly possible the warehouse retailer is moving into what will prove to be a prolonged headwind. Never say never.
However, the market's mostly overlooking a key detail behind last month's slowing sales growth. The company itself isn't doing anything wrong. The slowdown is just rooted in highly unusual circumstances that are apt to be temporary. This reality is likely to become clear beginning with monthly sales and quarterly results late this year and early next year. But Costco stock itself may start reflecting the company's reliable long-term growth cadence well before those numbers start rolling in. Investors have a knack for spotting and then correcting their collective missteps sooner than later.
