Costco's September Comps Beat Street View, Could Improve In The Months Ahead

Baird analysts maintain their Outperform rating on Costco Wholesale Corporation (NASDAQ: COST) as it expects better traffic and sales in the coming months following better-than-expected September comps.

The brokerage's optimistic call comes despite headwinds from tobacco and the expected continuation of deflation. But, Costco should face easing comparisons, while members increasingly recognize the benefits of the new Visa credit card.

For the month of September, Costco reported comp of +1 percent, beating the Street's -0.1 percent estimate, although core comps slowed from August's +2 percent. Despite the beat, Baird called September comps sluggish, saying, "[T]he 0 percent U.S. core could still be viewed as a disappointment."

Related Link: Retailers Give September Sales Updates/bzrelatedlink>

Traffic increased just under 2 percent (vs. 2.3 percent in August), with United States/Canada slightly better. Core average ticket (ex-gas/fx) declined about 75bps versus slightly positive in August, reflecting deflation across fresh food, food/sundries and electronics.

But, lead analyst Peter Benedict said, apart from easier compares and Visa Inc (NYSE: V) card benefits, the potential upside could come from the potential U.S./Canadian membership fee increase in CY17 and perhaps even another special dividend.

Benedict reiterated his $175 price target, while the shares were currently down 0.09 percent to $149.85.

At last check, Costco was down 0.32 percent at $149.50.

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