Costco (COST) reported strong June same store sales last night. Comparable store sales rose 6% in June (+6.5% in the U.S. and +3.2% in Canada). This marked an acceleration from +4.1% in May and a flat reading in June of last year. Analysts expected a comp near the May reading.
Excluding the impact from gasoline and foreign exchange, comparable store sales rose 6.5%. Costco same store sales are up 3.6% year-to-date.
There aren't any other retailers of this size posting better comps. For fiscal 2018, Costco is expected to post a +3.5% comp on $128 billion in sales. Costco does more in sales than Kroger (KR) and is third to only CVS (CVS) and Wal-Mart (WMT) in terms of total sales.
Costco trades at a premium valuation of ~27x earnings because its members are very loyal. It has been one of the few retail safe havens in a world where e-commerce (Amazon) continues to hamper retail foot traffic.
The stock was trading near an all-time high but is down ~12% since Amazon (AMZN) announced plans to acquire Whole Foods (WFM) last month. Grocers have reason to be concerned about what Amazon will do with Whole Foods. We can assume Whole Foods won't ditch its core customer and will remain at the high end of the market focused on healthy and fresh food.
However, the expanded distribution network and the technology that Amazon will bring could very well change the grocery game as we know it. Not to mention, Amazon always aims to compete on price. The impressive margins of Amazon Web Services (its cloud computing business) effectively subsidizes Amazon's foray into any other business.
Consumers will still make their routine trips to Costco for great wholesale deals on quality products, but COST investors were clearly perturbed by this new channel that Amazon could use to take more retail market share, as evident by the multiple contraction we have seen in the stock.
COST remains in a healthy long-term uptrend on a Weekly chart.