Costco Boosts Retail Optimism

Bears are in full retreat as spending stays strong

BREAKING NEWS

Costco stock rose mildly this morning after the company posted a solid earnings beat that suggested retail sentiment is staying strong amidst a slowdown. 

WHAT HAPPENED

In a moment where some indicators for Costoc were pointing toward decline, the megastore generated a higher-than-expected $3.58 EPS from $57 billion in revenue. The market is pretty stunned by the fact that Costco is still managing to find ways to boost profits. 

COST KILLER

Repeatable sales growth is what really kept things afloat for Costco in their fiscal Q1. Same-store sales got a huge boost as people really bulked up their food purchases in November. In the days leading up to Thanksgiving, Costco sold a record 4 million pies. More importantly, e-commerce sales rose significantly as Black Friday shoppers turned to Costco’s digital deals. Costco was able to net huge benefits from durable goods like TVs and appliances turning deflationary. Lower freight costs managed to slash prices by as much as 20%-30%. 

WHY IT MATTERS

We’re seeing the right combination of factors hit at the exact right time to bolster everyone’s expectations for an economic recovery. Even at this point of slowdown, folks are buying enough to keep growth alive. At the same time, inflationary pressure is falling enough that companies like Costco can keep up with expectations for profit growth. Pushing out of this inflationary spiral is going to be messy and complex—but results like this show that it’s at least possible. Costco stock rose over 1% in early trading.