Tags: Costco | small | business | COST

Costco Strength Is Small Business Sales

By    |   Tuesday, 03 January 2012 04:49 PM

Weak economies are tough on all retail sectors, but Costco (COST) big box club stores have managed to keep up strong sales growth despite reduced per capita spending by consumers. The key going forward into the next quarter may be small business.

During its first quarter 2012 reporting, sales came in at $21.18 billion compared to $18.82 billion during the same period the previous year. But profit margins were hit as the company tried to keep its prices low, especially on gas and food.

Gross profits for the period ending Nov. 20 reached $320 million, up from the $312 million seen during the first quarter in 2011, reflecting lower margins as well as some one-off write downs due to taxes and lobbying.

As the U.S. economy struggles to recover, it’s the small businesses that will be looking to make sure their own margins are intact, and for many that means a trip to Costco. Between sales during Black Friday and the day after Christmas, it’ll be shopkeepers seeking deals that will keep their businesses afloat through early 2012.

Rough patch

Just as small businesses hope that Costco will get them through another rough patch, those same small businesses are likely to help strengthen Costco going into the next quarter.

Costco doesn’t truly fall into the discount category like others in its sector, such as Dollar General (DG) and Wal-Mart (WMT) as those don’t cater as much to the small shop owners who are looking for bulk purchases. But some of the same consumers shop for their day-to-day food and household needs at whomever’s cheapest, which is why Costco has chosen market share over margin for now.

Costco recently had its price target raised by Morgan Stanley to $97, with an overweight rating on the company.

The company next reports on Feb. 29.

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Tuesday, 03 January 2012 04:49 PM
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