September Retail Sales Report Leaves No Doubt About Costco’s Share Gains
Here's where consumers have been spending and how it supports several Pro Portfolio names.
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I touched on this morning’s September Retail Sales report in my Diary comments earlier today, but I wanted to share some deeper thoughts with folks who follow the Portfolio and on Costco COST as well.
September Retail Sales Were Stronger Than Expected But...
Headline September Retail Sales were up 0.4%, ahead of the 0.3% forecast and a meaningful step up from August’s 0.1% increase. Some are attributing the unexpected strength to the decline in gas prices, which was captured in the drop in gas station retail sales.
Excluding almost everything (motor vehicles, food service) to get to a stand-alone Retail figure we find that line item rose 0.3% compared to August and was up 1.4% compared to September 2023. For the September quarter, Retail rose 2.9% year over year and climbed 1.6% compared to the June quarter, which no matter how you slice it says the consumer was spending more. This bodes well for our position in Mastercard MA and supports our recent price target increase.
Where Were Consumers Spending?
Non-store retailers: up 7.0% for the September quarter and 7.1% in September, which supports our view consumers continue to lean into digital shopping sites like Amazon AMZN to stretch their spending dollars. Keep in mind, when we get the October Retail Sales report it will contain Amazon’s Prime Big Deal Days event as well as competing efforts.
Health and personal care stores: up 4.3% and 4.6%.
Food services & drinking places: up 3.7% for both periods.
Clothing & Accessory retail sales climbed 3.5% year over year in September, pulling up the quarter’s figure to 2.3% on a year-over-year basis. This has led some to think the bump in September was due to a late surge in Back-to-School shopping.
Grocery store sales rose 2.3% for the quarter and 2.5% in September suggesting a shift back to eating at home, which supports our decision to stick with PepsiCo PEP shares.
Where were folks not spending? Quarterly and year-over-year declines were seen at Electronic and Appliance Stores, gas stations (no surprise given oil prices during September), and department stores.
Costco Continues to Take Wallet Share
Does what we see support our bullish stance on Costco? It sure does, largely because Costco’s U.S. comp sales ex-fuel and foreign exchange rose 9.3% while its e-commerce sales soared 22.9% higher during the month.
Should we see indications of continued strong wallet share gains with Costco’s October sales report, which is slated to be published on November 6, we may need to revise our $950 target higher.
At the time of publication, TheStreet Pro Portfolio was long COST and AMZN.
