Higher Gas Prices Are Already Having a Positive Impact on Costco's Sales
Key Points
Costco's comparable sales for the month of March were more than 9%.
Consumers have been filling up more, but in-store sales haven't been rising in unison.
The stock is priced at a hefty premium, trading at more than 50 times earnings.
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A big perk of having a Costco (NASDAQ: COST) membership is being able to fill up a tank of gas at a lower price. Now, with oil prices spiking due to the war in Iran and uncertainty in the Middle East, there's even more of an incentive for shoppers to go to their local Costco warehouses to save money.
For Costco, that can potentially create a domino effect where shoppers fill up on gas and, while they're nearby, also load up on essentials. And recently, the company released its latest sales numbers, which seemed to indicate that traffic has indeed been rising.
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Costco's comparable sales were up big in March
Costco reports monthly comparable sales that include everything and that also exclude the impacts of changes in gas prices and foreign exchange. Below is a summary of the past three months.
| Period |
Comparable Sales Growth (including everything) |
Comparable Sales Growth (excluding impacts from changes in gas and foreign exchange) |
|---|---|---|
| Period ending April 5 | 9.4% | 6.2% |
| Period ending March 1 | 7.9% | 7% |
| Period ending Feb. 1 | 7.1% | 6.4% |
Table by author. Source: Company press releases.
There has been a noticeable uptick in the retail company's overall sales growth rate in March, rising to over 9%. However, when factoring out changes in gas prices and foreign exchange, the comparable growth was actually a bit lower than it has been in earlier months this year. While higher gas prices have led to greater growth, it doesn't appear that there's been more in-store shopping.
Should you buy Costco stock while oil prices remain high?
Costco may be getting a boost from higher oil prices, but its costs are also higher, which is going to negate much of the benefit for the bottom line. What's disappointing is that there hasn't been a related increase in the growth rate that excludes changes in gas prices and foreign exchange, suggesting that people may simply be filling up on gas and leaving right away. And since they're not physically inside the stores, it's easy to just drive off.
I wouldn't suggest buying Costco stock just because gas prices are higher. While the business may benefit from more traffic, the early numbers don't seem to support the idea that it will lead to stronger in-store sales. And with geopolitical conditions changing rapidly this year, it's difficult to predict what will happen in the weeks and months ahead.
Plus, with Costco stock trading at more than 50 times its trailing earnings, it isn't a cheap buy, either. Unless there's a significant price decline, I would continue to steer clear of the stock, as it remains highly expensive, and any benefit the company may receive from higher oil prices may not be enough to change that.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
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