- November sales fall short of estimates
- Oppenheimer removes Costco from top pick list
- Retailer offers a strong proposition for cash-strapped shoppers
Shares in Costco Wholesale (COST:NASDAQ) plunged 6.6% to $503.9 on Wall Street overnight after the Washington-headquartered retailer reported weaker than expected sales for November which suggest shoppers are feeling the pinch heading into the festive selling season.
Given its strong proposition for cash-strapped consumers, Costco is viewed as a winner for inflationary times and commands a lofty equity rating.
Yet Oppenheimer reacted to the disappointing sales figures by removing the stock from its top pick list, pointing out the figures showed trends weakened ‘meaningfully’ last month.
SALES GROWTH SLOWS
For the uninitiated, Costco offers low prices to members, including hard-pressed individuals and cash-strapped small and medium-sized businesses, by focusing on a small number of items and eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers.
It sells a limited range of cheap items, passes through any price increases to the customer and makes additional money via an annual membership fee.
Costco’s sales increased by 5.7% to $19.17 billion year-on-year in November, robust enough but below consensus and October’s 7.7% rise to $17.73 billion and September’s 10.1% hike to $21.46 billion.
US same store sales excluding gas rose 4.6% over the four weeks ended 27 November, representing a slowdown from the 6.1% generated in October, with Costco bemoaning weakness in the consumer electronics, jewellery and hardware categories.
WHAT’S WORRYING OPPENHEIMER?
‘With this report and our existing concerns on aggressive Street forecasts, we now expect an even more material reset in consensus forecasts,’ warned Oppenheimer analysts Rupesh Parikh and Erica Eiler in a note to clients.
‘As we await a full reset of Street figures, and given potentially lingering big ticket headwinds, we are removing Costco from top pick status. For longer term players, we would continue to take advantage of dips in Costco shares.’
Evercore ISI said November’s mellow sales prove even Costco is not immune to a slowdown. Still, it remains positive on the stock as the retailer’s ‘loyalty driven model should continue to differentiate amidst an inflationary backdrop’.
Shares in Costco, scheduled to unveil quarterly results on 8 December, are down 11.1% year-to-date, roughly in line with the drop in the S&P 500 index.
