Costco Takes a Brutal Beating From Walmart

Costco Wholesale Corp. (NASDAQ: COST) is not supposed to look anything like Walmart Inc. (NYSE: WMT). Its shoppers tend to be more affluent. It has fewer stores, which it claims are strategically located near its target customers. It charges an annual subscription fee, giving it recurring revenue that is not tied to month-to-month sales. However, there is an extent to which the big-box retailers such as Target compete for a large share of America’s shoppers because of their sustained ability to offer discounts and the size of their stores. Costco lags Walmart in this race by a large margin.

In the most recently reported quarter, Costco’s revenue rose an impressive 15.2% to $80.76 billion. This did not translate into as much of an improvement on the bottom line. Earnings reached $4.21 per share, up 11.9%. Comparable store sales rose an impressive 13.7%. Costco’s figures after the earnings release were less impressive. Comparable store sales rose 8.5% in September, 6.0% in October and 4.3% in November. Is it any wonder Costco’s shares have sold off in the past three months? (Over the same period, Walmart’s share price has risen).

Costco’s worst problem is that online sales improvements lag substantially behind in-store sales. In a world where every retailer competes with Amazon, Costco’s online figure dropped 10.1%.

In the most recently reported quarter, Walmart’s revenue rose 8.7% to $152.8 billion, an extraordinary improvement for America’s largest company based on revenue and headcount. Comparable store sales rose 8.2%. Walmart raised its full-year outlook. A $3.1 billion opioid sales settlement crippled the bottom line. Walmart lost $1.8 billion.

The strength that stood out most to investors is that e-commerce sales increased by 16%. Walmart is not Amazon, but it is getting closer.

So far this year, Walmart’s shares are up over 5%, while Costco’s are off nearly 13%. That speaks for itself.

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