Costco Wholesale (COST 1.01%) has been a growth machine over the years. During the early stages of the pandemic and even amid inflation, the business has been able to generate strong growth.
For many consumers, it's a great place to load up on essentials in high quantities to help keep costs down. But there are signs that the business might be finally slowing down.
Comparable-store sales have declined
Costco reports on its comparable-store sales (comps) every month, and the results have normally been positive. However, for the month of March, the company's comps for the period ending April 2 slipped into a 1.1% decline, which is abnormal for the business. Although the growth rate has been slowing down, this marks the first time in multiple years that comps declined:
Source: Company filings. Chart by author.
The company's e-commerce sales have been hit particularly hard, falling by nearly 13% from the same period last year. A year ago, the company reported overall comps growth of 17%, and nearly 9% growth in e-commerce.
Costco has been going up against some strong growth numbers, and so a letdown was inevitable at some point. This could be a sign of consumer weakness as months of high inflation have been weighing on the economy. The danger is that the decline could continue to worsen if a recession hits this year.
Should investors be worried?
The slowing monthly sales numbers have resulted in some underwhelming results for Costco in recent quarters. Its most recent quarterly numbers, for the period ended Feb. 12, showed just a modest 6% growth rate.
COST revenue (quarterly YoY growth) data by YCharts. YoY = year over year.
Now that the company's monthly sales growth looks to be falling even further, investors might need to brace for potentially softer quarters ahead. And with economic conditions not improving anytime soon, Costco's business might struggle even more as the year goes on.
Is Costco stock a buy?
Costco's business could end up facing some challenging headwinds this year, but in the end, these are short-term problems. In the past 12 months, the stock has fallen by 17%, and it could decline further should it underperform as the year goes on.
If you're buying the stock for the long haul, however, the company's fundamentals are still sound and make it a relatively safe buy. The recent decline might be alarming, but in a way it's a testament to how strong and amazing the business has been. For multiple years, it has continued to generate growth on top of already impressive growth.
Costco is one of the best growth stocks out there, and it's one that you can comfortably buy and tuck into your portfolio.
