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Aug. 7, 2020, 5:08 p.m. EDT

Costco’s more affluent customers helped prevent the sales slowdown that other major retailers saw in July, analysts say

JPMorgan analysts even think Walmart saw some deceleration during the month

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By Tonya Garcia, MarketWatch

Costco customers continue to flock to warehouses to stock up, results show

Costco Wholesale Corp. reported a 4.5% increase in U.S. comparable traffic and sales growth in July even as other retailers saw a deceleration, a result that analysts say was aided by its more affluent customer base.

Sales rose 8.8% to $149.66 billion for the month, with comparable sales in the U.S. up 13.3%.

“With Costco’s average member skewing from an affluent demographic and the solid execution of its model, we think this strength should continue even as stimulus and unemployment benefits wane,” wrote UBS analysts in a note.

UBS rates Costco /zigman2/quotes/201191698/composite COST +1.05%   shares buy with a $355 price target.

Read: Beyond Meat offers discounts during COVID-19 to take advantage of higher beef prices

Among the top-selling categories were meat and produce and liquor, which speaks to the additional time shoppers have spent at home amid the coronavirus pandemic.

However, JPMorgan analysts think even Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.97%   experienced some deceleration in July, despite its huge grocery business.

“We also believe Walmart has participated in this deceleration and… we continue to favor Costco’s better-heeled consumer in a recessionary macro backdrop (average U.S. household income ~$100K) versus that of Walmart ($50-$60K with a large left tail),” JPMorgan said in a note.

JPMorgan thinks Costco is positioned to excel no matter the economic or consumer environment, whether it’s a financial crisis, a pandemic, or a landscape that favors spending.

“In 2H20, whether the consumer is eating more at home or feeling good enough to engage in the treasure hunt atmosphere of its 140,000-square-foot box (or use its attractive travel options), we see Costco as a share gainer,” analysts said.

Watch: Work from home is here to stay. Here’s what it means for retail

JPMorgan rates Costco shares overweight with a $365 price target, up from $333.

Stifel analysts think Costco is setting itself up to continue to make gains into the future.

“We anticipate the company will continue to invest in price and e-commerce to reinforce its value proposition, which we view as key to sustaining favorable comp and traffic trends and continued outperformance of peers,” wrote analysts led by Mark Astrachan.

“Costco has effectively balanced sales growth and gross margin expansion in recent quarters with reinvestment. We anticipate this trend will continue, driving mid-to-high single-digit operating income growth over the next two-to-three years.

Stifel rates Costco stock buy with a $360 price target, up from $330.

Costco shares have rallied 16% for the year to date while the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.09%   is down nearly 4% for the period.

US : U.S.: Nasdaq
$ 365.67
+3.79 +1.05%
Volume: 917,365
Jan. 26, 2021 1:24p
P/E Ratio
Dividend Yield
Market Cap
$160.30 billion
Rev. per Employee
$ 147.63
+1.42 +0.97%
Volume: 2.71M
Jan. 26, 2021 1:24p
P/E Ratio
Dividend Yield
Market Cap
$413.64 billion
Rev. per Employee
US : Dow Jones Global
+26.75 +0.09%
Volume: 213.89M
Jan. 26, 2021 1:24p

Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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