There are signs Costco can beat the bear trend as consumers flock to clubs due to soaring prices

Published Thu, May 19 202211:49 AM EDTUpdated Thu, May 19 20221:56 PM EDT

Costco reports earnings next Thursday. Based on what we've seen this week, it could be a strong quarter for the warehouse club. Costco shares suffered alongside other retailers in a broad sell-off Wednesday, losing nearly 12.5%. The retailer's shares are off roughly 25% for the year. Brighter days may be ahead, however, even as retailers and shoppers grapple with rising prices. As BJ's Wholesale Club CEO Bob Eddy commented Thursday as the retailer issued its quarterly results, "Our business model remains more relevant than ever in the current inflationary environment." He added on the earnings call that the "rapidly increasing price of gasoline during the first quarter drove our traffic into our clubs as members continue to recognize the value of the BJ's membership." Consumers are clearly flocking to membership clubs amid this inflationary environment. They're buying in bulk, and they're also trying to lock in lower gas prices there. When Walmart reported earlier this week, it noted that Sam's Club comps soared 10.2% (far more than expected) — and that was ex-fuel. Including gas impact, comps surged 17.0%. Although Sam's Club's average ticket remained relatively flat from elevated levels in the year-ago quarter, look at transactions. That metric skyrocketed 10% in the quarter (in the year-ago quarter, transactions were only up 2.2% in comparison). BJ's revenues were solidly above estimates. Comps rose 4.1% ex-fuel, but they soared 14.4% including gas. Strong traffic helped, and the company's CEO pointed out, "We also saw gas driving tremendous amount of traffic." While high year-over-year gas prices are inflating the overall comps figures, it's clear consumers are also buying more fuel at these membership clubs. There's good news for BJ's: The gas business isn't just going bonkers on the sales side — thanks to high prices — but it's doing well for overall profits, too. Indeed, on the company's earnings call, CFO Laura Felice referred to "gas margin profit that significantly outperformed our internal plan." Watch Costco's membership figures next week, too. See how many new members it drew in over the past few months because consumers wanted access to lower gas prices at their locations. Look at some of the corresponding figures for Sam's Club and BJ's this week. Walmart said Sam's Club membership income jumped 10.5%. BJ's said membership fee income surged 11.9% — that was a bit more than Wall Street expected. BJ's also noted that it hit its 6.5 million member milestone "earlier than expected," thanks to strong renewals as well as new membership growth.