These 2 Retailers Were a Bright Spot During Earnings Season. What They Have In Common. -- Barrons.com

By Andy Serwer

Here's to the winners.

By now, almost all of the nation's big retailers have reported their most recent quarterly earnings. While results were somewhat mixed-to-down, with disappointing updates from Target and Kohl's, two standbys are killing it: Walmart and Costco.

For that pair of stalwarts, there's nothing flashy going on, except where it counts.

Walmart and Costo share several noteworthy similarities, including

strong profit gains. In its most recent quarter, as   Barron's Sabrina Escobar noted , Walmart reported adjusted earnings of 58 cents a share for the period ended in October, while the consensus forecast on Wall Street was for 53 cents. Walmart's revenue increased 5.5% to $169.6 billion, while analysts polled by FactSet were expecting $167.7 billion. 

Since reporting on Nov. 18, Walmart's stock is up nearly 12%. That comes on top of stellar long-term stock market returns during CEO Doug McMillon's tenure.

As for Costco, which reported Thursday. Yes, as Escobar noted, quarterly revenue was a bit light -- $62.2 billion, missing expectations for $66.5 billion. However, investors seemed to focus more on earnings per share of $4.04, which topped analysts' estimates for $3.79 a share, according to FactSet.

Costco, which has recently set new intraday highs above $1,000, closed up 0.1% at $989.35 on Friday. Costco is a bonafide stock market super-star, with its shares outperforming the S&P 500 over the past three months, six months, year-to-date, three years, five years, and ten years.

The retail giants are also, perhaps surprisingly, nailing it with premium customers. In a Friday note to clients, TD Cowan's Oliver Chen described a "key tailwind" -- part of which is Costco customers, who are often wealthier than average consumers, spending big on premium meats recently.

Walmart, meanwhile, seems to be pulling customers away from the competition, including higher-end retailers. "Walmart U.S. reported sales growth of a robust 5.3%, the best in five quarters. This is well ahead of any other major retailer and soundly outperformed Kroger s 2.3% sales growth," Gimme Credit Director of Research, Carol Levenson, wrote in a Tuesday note. "Most department stores, in fact, reported negative 'comps.'

"No wonder Walmart says it is continuing to gain U.S. market share, with the interesting fillip that households earning more than $100,000 comprised 75% of its share gains, somewhat belying its image," she added.

Walmart and Costco are rock-steady, too. "The last time Walmart U.S. reported a quarterly decline in comparable sales excluding fuel was in 2014," Levenson wrote.

Over at Costco, Chen writes, the chain has been bolstered by year-over-year gains in membership income and traffic frequency to its U.S. stores. This means that investors know they can count on management at these companies to deliver consistent quarterly results -- no small thing.

Chen and Levenson, who rate Costco and Walmart a "Buy" and "Outperform," respectively, note the businesses are also making impressive strides in e-commerce and offer their consumers exceptional value. Costco stock has gained 50% this year, while Walmart has climbed over 79%. The S&P 500 has moved 26% higher in the same span.

While many other mass market retailers are struggling, Walmart and Costco continue to distance themselves from the pack. The key differentiation seems to be relentless execution.

Write to editors@barrons.com

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December 14, 2024 10:42 ET (15:42 GMT)

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