Skip to main content

Costco (COST) - Get Costco Wholesale Corporation Report  is really spanking Walmart's (WMT) - Get Walmart Inc. Report butt on several fronts.

While Costco didn't exactly set the world ablaze with its sales and profit growth in the latest quarter as it has done historically, it did continue to outperform Walmart's Sam's Club in several key areas, likely due to its relentless focus on keeping prices low and the resilience of its higher-income members.

Costco's U.S. same-store sales, excluding gas deflation and the dollar's strength, increased 3% in the quarter compared to a paltry 0.1% improvement at Sam's Club. Membership fee income for Costco rose by 5.8% to $618 million, compared to a 3.9% gain at Sam's Club. Costco's renewal rates in the U.S. remained steady at 90%, while it saw a 15% increase in new member sign-ups.

"The price gaps between us and competitors have never been wider," said Costco Chief Financial Officer Richard Galanti to analysts on a call. 

Even as Sam's Club is viewed by many retail watchers as being ahead of Costco on the technology front, keeping it simple does seem to continue to be paying off for Costco.

TheStreet Recommends

"If you study Costco, they have won because of the discipline of their model -- and they are unwilling to move away from that discipline," noted Sam's Club President and CEO Rosalind Brewer in a recent interview with Fortune.

Meanwhile, Costco also notched another solid quarter online, where it does business in six countries outside the U.S. Costco's online sales rose 14%, or 15% excluding the impact of the strong U.S. dollar. Walmart's online sales growth continued to slow in the first quarter, increasing 7% excluding the effects of the dollar. Online sales in the U.S. grew at a faster clip, but Walmart conceded results were not up to par. 

"We will continue to work through the challenges we have experienced in key markets like Brazil, China and the U.K. where our e-commerce and mobile commerce sales are softer," Walmart CEO Doug McMillon said on a call, adding the company is focused on expanding the number of items it sells online around the globe. 

Costco's relative out-performance of Walmart and others in retail during the quarter helped earnings to increase 6% from the prior year to $1.24 a share. Wall Street had anticipated earnings of $1.22 a share.

Total revenue rose 2.7% year over year to $26.8 billion, narrowly missing forecasts for $27.1 billion. Excluding the impact of gas price deflation and the strong U.S. dollar, Costco's third-quarter same-store sales rose 3%.

In a new note on Thursday, TheStreet's Jim Cramer and Jack Mohr of the Action Alerts PLUS Charitable Trust Portfolio, said they were "encouraged" by the quarter, adding "we are bullish long term (hence our $175 price target), but expect shares to ramp after the company reports July sales, as we believe customers are awaiting the late-June transition from legacy AmEx to the Citi/Visa co-brand card (the latter of which offers far larger rewards) before spending on big-ticket items."

Costco is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells COST? Learn more now.