Costco: Early Sign -- or Exception?

Costco Wholesale Corp. (COST) posted impressive results this morning. My question is what sales and profits at the warehouse retailer say about retail more broadly.

Costco posted earnings of 85 cents last quarter, beating Wall Street’s estimates of 7 cents.

“The company also reported sales and traffic growth for September, both of which accelerated from August,” writes Credit Suisse (CS) analyst Michael Exstein.

Traffic was up 4.5% from a year ago, while worldwide same-store sales rose 1%. (Though they were down 1% for the U.S. alone.)

On the news, Costco shares rose 1.85% on Oct. 7.

Investors are still skeptical about the outlook for consumer spending, and in that environment, Costco is beating (low) expectations. But can the rest of retail do the same?

Michael Yoshikami, president and chief investment strategist at YCMNET Advisors, thinks not. In an interview yesterday, he said Costco typified the kind of company that could perform well in this economic environment. He said:

[Costco] is a company that is going to do well in a slow-growth economy. [Discount retailers] like Costco, Wal-Mart (WMT) and Amazon (AMZN): These are companies that are going to gain share when consumers have less money to spend.

In an era of almost 10% unemployment and high consumer and business debt, Wal-Mart wins and Nordstrom (JWN) presumably loses. This is despite the fact that Wal-Mart shares are down 12% this year, while Nordstrom’s stock is up 143%. (Nordstrom was making up for a terrible 2007 and 2008 after all.)

But how long does this gloomy environment last? If the economy keeps improving, eventually that will benefit a broad range of retailers. The question is how long and how fast that general improvement can continue. And, as far as I can tell, economists are having a very tough time agreeing on an answer. What do you think?

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