A Sales Surge At Costco: Has The Consumer Returned, Or Just The Frugal Consumer

Costco (COST) has built its revenue over the years by selling quality goods for low prices. That is in contrast to Target (TGT) and Walmart (WMT) which have reputations for selling cheap products at a low prices. Costco parking lots often have as many Mercedes and BMWs in them as Subarus and Nissans. Upscale consumers like bargains just as well as those  less money.

Costco’s sales over the last month took a big  jump, up 11% to $5.61 billion. Same-store sales for the period which ended February 28 were up 9%.

For the quarter ending February 14, Costco revenue rose to $18.4 billion from $16.5 billion in the same period a year ago. Net income rose to $299 million from $239 million and EPS jumped to $.68 from $.55

What the Costco figures do not tell the market is whether general retail sales have begun to recover strongly or if the migration of shoppers to discount firms has increased because of the tough economy. In either case, the news is good for the big box retail outlets, but may not be as positive for department stores like Macy’s (M), JC Penney (JCP) or Nordstrom (JWN). There is a concern among economists that GDP will slow sharply in the first half of this year after a fourth quarter expansion. Some of this weakness was seen in February car sales and a rise in unemployment claims. Consumer confidence numbers and home sales have also been weak.

A consumer move to frugality probably does very little for the overall economy. It is a transfer of consumer spending to one sector of the retail industry from another and probably does not increase net sales across the sector. Shoppers become more selective but not more active, at least in terms of the amounts of money that the spend.

Costco’s earnings news is good for Costco, but it may not be good for any other company.

Douglas A. McIntyre