Costco Wholesale Gets New Life

On Thursday, Costco posted strong June sales numbers. The positive news may be another sign that the wholesale giant is extending its lead on Wal-Mart's Sam's Club. 

Source: Costco

What happened?
Costco reported June sales numbers that beat analysts expectations. For the month, Costco's same-store sales rose 6% (vs. expectations of 5.4%), on higher gas prices and a strong 7% jump in international comps. If not for a negative foreign currency effect, international comparable sales would have been even higher (8%). 

In addition to the strong same-store sales, Costco's net revenues soared 10% in June.

So What?
Costco's sales are trending in the right direction. It posted a solid 4% rise in same-store sales last quarter, better than most retailers, and the past two months have been even better.

June's strong numbers follow a 6% jump in same-store sales, and an 8% rise in revenues, for May. June's numbers were stronger in both net sales and international comps, as Costco is trending higher in most categories. 

Not all retailers are doing as well. These numbers come just days after Wal-Mart CEO Bill Simon tried to explain why better unemployment numbers weren't translating to better sales for Wal-Mart. In an interview on CNBC, Simon said: "The economic numbers have been difficult to read with the number of people dropping out of the workforce...It will take a while, 6 months to 12 months, to balance out."

Wal-Mart's has posted its most sluggish sales growth in years, recently. Like many retailers, Wal-Mart has blamed the weather, and a tight retail environment, on its recent malaise. Most retailers are in a funk right now. Consumers seem to be buying homes, buying cars, but cutting back on the shopping mall. Somehow, Costco is bucking that trend. 

Wal-Mart is the parent company of Sam's Club, Costco's largest competitor (with over 600 locations). While Wal-Mart may have a much bigger needle to move, it does reflect nicely on Costco that its sales are ramping up while competitors are stalled. 

Now what?
In its last three quarters, Costco has posted disappointing earnings while still having some decent sales numbers. The stock was barely up on today's good news and still trades at reasonable valuations. At a price-to-sales valuation of just 0.5, now might be a good time to take a look at Costco's stock. 

The company next reports earnings on October 9. Costco's wholesale business model is a low margin one, so the key will be seeing how well these sales drop to the bottom line in October.

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Adem Tahiri has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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