Jim Cramer has a message for investors who don’t own Costco after solid June sales
There’s no better time to stick with Costco than right now, Jim Cramer says, on the back of the company’s solid June sales report late Wednesday. “You’re going to want to stay with Costco because that’s going to be the way you fight inflation,” Jim said Thursday on “Squawk on the Street,” a day after the membership-only retailer delivered healthy headline sales last month amid a challenging retail environment threatened by tariff uncertainty raising consumer prices. “I’m more steadfast about Costco now that we have tariffs coming because boy, they’re going to keep prices down.” “Those who do not own Costco … might want to put some in,” Jim said. “I think Costco is a buy,” during the Investing Club’s Morning Meeting on Thursday. Costco announced late Wednesday that its U.S. core comparable sales, excluding gas prices and currency fluctuations, rose 5.5% for the four weeks ending Jul. 6, slightly below Wall Street’s estimate of 6% estimate but above buy-side expectations of 5%, according to JPMorgan’s analysis. Total company sales grew 6.2% — matching their May increase, but were slightly lower than April. U.S. traffic fell slightly to up 2.4% from up 2.8% last month and was down from mid-single-digit levels to start the year. However, that weakness is being offset by average transaction size growth of 2.4%, which was an acceleration from up 0.9% in May. Costco stock dipped roughly 0.5% to around $977 per share in Thursday’s midday trading. Across categories, fresh foods led performance, with meat and produce driving high-single-digit growth, consistent with May. Nonfoods, including jewelry and gift cards, were slightly better than May’s mid-single-digit growth. Food and sundries grew mid-single digits, down slightly from up mid-to-high-single digits last month. The company’s comparable sales have been running light for the past few months, but Jim is “not worried” in the slightest. He points to the warehouse retailer facing tough year-over-year comparisons since introducing high-demand gold bars online and in some physical stores. Gold has become a hot commodity and a tailwind for Costco’s revenue, often selling out quickly after being restocked. Costco’s gold bars are considered competitive because they are being sold at a small premium over the gold spot price, which is seen as a good deal for members. COST YTD mountain COST YTD stock performance. Costco shares have also been under pressure due to its premium valuation, which leaves little room for error despite the company’s strong execution and durable membership-only business model – two key fundamental factors that Jim has long praised and argued are worth paying since the warehouse retailer keeps prices low for members. It does that through its high-volume, low-margin business model, and leveraging economies of scale to negotiate better deals with suppliers. Also, its membership fees provide a stable revenue stream, allowing the company to prioritize value over profits. JPMorgan suggests Costco’s underperformance may be ending. Analysts pointed to Costco’s Canada and international sales jumping by 7.9% and 8.2%, respectively. They also noted that issues like new store openings hurting existing store sales are easing, stating the “source of funds short in COST … should be fading,” as challenges from gold and gas prices lessen. The “source of funds” that JPMorgan is referring to is investors selling Costco on strength after it had a nice move into mid-May and early June and using those funds to buy other stocks. From May 14 through Jun. 2, Costco stock rallied 6.6% from $991.54 to $1,056.85. Now, with the stock stabilizing around $977, “I think this may be a level to get involved,” Jim said, even though we’re still in an overbought market. We have a price target of $1,100 per share on Costco and a buy-equivalent 1 rating on the stock. We’re going to run through Costco and many other stocks in the portfolio during Friday’s CNBC Investing Club annual meeting from the New York Stock Exchange. The livestream begins at 10:30 a.m. ET. (Jim Cramer’s Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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