Costco (COST) has seen an uptick in sales and profits driven by rising gas prices, likely already factored into its stock value. Since the onset of Operation Epic Fury on February 28, Costco’s shares have risen by 1%, contrasting with an 8.2% decline in the S&P 500 index. This relative resilience is attributed to a straightforward two-part premise regarding consumer behaviour and Costco’s pricing strategy.
Firstly, escalated fuel costs are prompting consumers to visit Costco for more affordable petrol, leading to increased grocery sales as shoppers seek budget-friendly food options. Notably, approximately 26% of Costco’s revenue is generated from California, where average gasoline prices have peaked at $6 per gallon—the highest in the nation.
With more than 640 warehouses across the United States, Costco operates numerous gas stations, further integrating fuel sales with grocery purchases. Analysts widely acknowledge that Costco is currently experiencing substantial sales growth, a trend likely to be reflected in its March sales report.
Market analysts are assessing whether Costco’s stock has already incorporated the planned increase in market share amid a climate of uncertain consumer spending. Guggenheim analyst John Heinbockel noted in a recent commentary that while historical data supports a potential profit and loss benefit from the 30% rise in gas prices, this prospect is largely anticipated by investors, contributing to Costco’s outperformance relative to broader market trends. Heinbockel predicts a robust 10% sales increase for March, with potentially stronger results in the following months.
Heinbockel provided historical context regarding Costco’s performance during previous spikes in gas prices, citing a significant rise of 43% in retail gas prices in spring 2022 due to the Ukraine crisis. Despite these pressures, Costco experienced enhanced operational momentum, with increased growth in sales volumes and product categories. This pattern suggests that as households spend approximately an extra $250 monthly on fuel, Costco’s competitive pricing—especially for its Kirkland Signature products—becomes increasingly significant.
While maintaining a Neutral rating on Costco’s shares, Heinbockel’s forecast contrasts with the more optimistic general sentiment reflected in Wall Street analyses. Considering the current fiscal stimulus remains unpredictable, Heinbockel does not anticipate any additional unit market shares in the upcoming months, and has excluded temporarily inflated gas margins from his forecasts, assuming considerable reinvestment.
Costco had been performing strongly even prior to the commencement of the US military engagement in Iran. Sales in February surged by 9.5%, with comparable store sales rising by 7.9%. Detailed figures showed a 6% increase in US sales, a 9.3% rise in Canada, and a 10.9% increment in other international markets, alongside a notable 20.8% increase in online sales.
Year-to-date, Costco’s stock has risen 16%, outpacing an 11% gain by rival Walmart (WMT), which owns the competing Sam’s Club.
In summary, while Costco is benefiting from rising fuel prices and is likely to report strong sales growth, analysts are keeping a watchful eye on whether these gains have already been priced into its stock. As the landscape of consumer spending remains uncertain, the retailer’s strategy of integrating gas and grocery sales could prove critical.
