Why Costco Stock Fell Today
Key Points
Discounted gasoline may be less of a growth driver if oil prices retreat.
Yet the warehouse store leader's value-focused strategy isn't going out of style.
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Shares of Costco Wholesale (NASDAQ: COST) declined on Thursday following the release of the discount chain's June sales metrics.
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Business is still strong
Costco's net sales climbed 10.6% year over year to $29.24 billion for the five weeks ended July 5. The company's comparable sales, which include revenue from locations open for more than a year, increased 8.8%.
Those are certainly not the results of a business in distress. However, Costco's shares trade at premium earnings and cash flow multiples to many other retailers, so investors' expectations were high.
Moreover, the market loves accelerating growth. When the opposite happens, and growth slows, it often drives traders to sell.
Costco's June sales growth decelerated from May, when its net sales and comps jumped 14.5% and 12.5%, respectively.
Yet it should be noted that after excluding changes in gas prices and foreign currency rates, the deceleration was more moderate, with adjusted same-store sales up 7% in June, compared to 8% in May.
Costco remains best in class
Higher oil prices provided a temporary boost to Costco's sales earlier this year, as its members visited its warehouses more often to take advantage of the discounted gasoline it offers.
Yet value-focused consumers remain on the hunt for bargains, and they know they can find them at Costco's warehouse stores. That should enable the discount leader to generate higher sales and profits over time, as it continues to expand its store count and membership base.
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Joe Tenebruso 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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