What Do Costco Wholesale Corporation (COST) Numbers And Difficulty For Target Corporation (TGT) Mean For Retailers During Holiday Season?

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Holiday season is crucial for any retailers be it Costco Wholesale Corporation (NASDAQ:COST) or Target Corporation (NYSE:TGT) or any other companies. Also, about 18 – 20% of the total annual revenue is generated during the holiday season period only. Aside from spending on gift cards, electronic gadgets, and newly launched products, weather also plays a big part in shaping up the consumer spending. The warmer weather means that the consumer spending on clothes for cool weather will be depressing. Though these things are not going to change the pattern altogether, these factors will be crucial in deciding whether the earnings and revenue top the expectations or miss the projections.

Costco Wholesale Corporation (NASDAQ:COST) and Target Corporation (NYSE:TGT) were taken for review for specific purposes. While the former released its first quarter numbers only recently thus missing the estimations of analysts, the latter’s CEO has talked some interesting factors on the upcoming holiday season. Also, the latter has boosted its outlook for the fourth quarter. Both companies delivered either in line or above the expectations in the past though Costco failed this time. None-the-less, their numbers and the difficulties faced by Target should have some impact on the retailers as a whole. Let’s look at both, i.e. the financial numbers of Costco, as well as, the difficulties of Target and how they could manage during the holiday season.

Advantage Over Online Retailers

National Retail Federation (NRF) has already estimated 3.7% growth for the upcoming holiday season. That is more than the 2.5% ten-year average sales growth witnessed in the past. However, it would be tough for every retailer to register significant growth as some of them might face weakness while others might have some strong catalysts to lure customers. In any case, the observations made by Target Corporation (NYSE:TGT) CEO, Brian Cornell, assumed importance as he is a veteran of the retail sector. At a time when consumers’ preference for online shopping is growing with the advent of smartphones or smart devices, he believes that the retailer still enjoys an advantage over the online retailers.

Cornell reiterated that the advantage of its capability to fulfill orders straight from the stores rather than waiting for delivery after placing orders through online. The company has also shifted its landscape with a focus on the new flexible-format store. Target Corporation (NYSE:TGT) is also counting on the localization efforts as it sought the opinion of customers on its offerings and launched relevant food products based on the local preference. That helps the retailer to not only understand the needs of its customers but also customize its assortment of things. As a result, the company was changing about 5,000 – 6,000 items on average. The effort was also yielding the expected results as it was able to record 1.5% – 2.0% growth in such stores compared to the control stores. Therefore, he was happy about the customers’ response to localization.

Attaches Importance To Online Also

Target Corporation (NYSE:TGT)’s Cornell said that until now the company was not using its stores as pickup locations for any online orders. Currently, the retailer is planning to make use of those stores to reach the last mile and provide deliveries in quick time to its customers. That is a clear indication that the company was giving importance to online shopping also and at the same time compete with the biggest online retailer, Amazon.com, Inc. (NASDAQ:AMZN). He also believes that it has an advantage over other traditional online retailers as it found that their idea of innovation was opening up a store, which it already has. The question is its utilization for the fulfillment of online orders, which it commenced now.

Weather Trend Holds Key

During the winter season, weather always plays a part in any retailer’s performance. On either case, whether favorable or unfavorable, companies used to provide the weather factors playing its role during their earnings conference call. Currently, National Weather Service has already extended the forecast for the United States indicating that warm weather trend would continue for a big part of the country. Already, the retailers are feeling the weak gasoline price hurting its sales. Now, the weather will also hurt the sales number since consumers will not likely to spending on clothes meant for the winter season.

That is a bad news for Costco Wholesale Corporation (NASDAQ:COST) and Target Corporation (NYSE:TGT). That is because the weather played its part during the Black Friday weekend sales in selected categories. Therefore, the threat of the weather playing a spoilsport looms large for any retail companies in the holiday season.

Foreign Exchange Hurts Costco Earnings

The earnings number of Costco Wholesale Corporation (NASDAQ:COST) fell short of the Street analysts’ expectations by eight cents a share while revenue was shy by $430 million in the first quarter. The company pointed out that the strong Greenback has unfavorably impacted its earnings by $42 million or ten cents a share than if it remained flat on YOY basis. Aside from that, its S,G&A were dragged down by eight basis points to hurt its EPS by four cents. In all, the company disclosed that 27 cents a share were lost due to these and other items like stock-based compensation.

None-the-less, Costco Wholesale Corporation (NASDAQ:COST)’s comparable store sales, excluding gasoline effect, was a positive one. Its total comparable store sales grew 6% while the United States, Canada, and other International segments reported 6%, 9% and 7% growth respectively. Including the gasoline impact, the company managed to record 2% growth in its comparable sales in the America while it slipped 9% in Canada and 5% at other international segments.

Conclusion

While gasoline and weather will likely play a spoilsport in the retailers’ performance during the holiday season, other categories like electronic gadgets and gift cards would retain its hold. While Costco Wholesale Corporation (NASDAQ:COST) need to address the S,G&A issue, Target Corporation (NYSE:TGT) has managed to come up with flexi format that attracted customers’ attention. That only suggested that if the retailers can gauge the mindset of the consumers’ then it could reap gains from the holiday season.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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