The Costco Bull Thesis Played Out In June, But Will The Market Follow?

Following a strong sales update from Costco Wholesale Corporation COST, BMO Capital Markets analyst Kelly Bania reiterated an Outperform rating and $185 price target.

The company’s same-store sales were up 6.3 percent in June, and supported by U.S. customer traffic of 4.5 percent. Comps in Canada were also at a 52-week high, up 6.8 percent.

That strength was led by outperformance in discretionary category sales, hardlines and softlines, and food sales.

The numbers are especially comforting considering widespread fear among investors of Amazon.com, Inc. AMZN’s growing threat to the grocery sector and other retailers.

Costco benefits from its “unique barrier to entry,” according to Bania, which stems from its wholesale prices, membership requirement and extensive product selection.

Comps this month were depressed by the July 4 holiday, but will more than be made up for by additional multi-vendor mailer and promotional days. Bania continues to expect strong same-store sales.

Following the sales report, Costco shares opened up about 2 percent on Thursday, but quickly pulled back to the low-$158 handle and were trading below the pre-report level intra-day Friday.

The question of whether the market can overcome the Amazon challenge will likely be left unanswered until the company issues its fourth quarter earnings and next year's guidance.

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