Fresh economic data and retail earnings this week showed consumers are still spending on essential goods even as prices remain high, a trend that bodes well for Club holding Costco (COST). U.S. retail sales climbed 1.3% in October month-on-month, the Commerce Department said Wednesday, as shoppers spent more on staples like food and gasoline. The monthly report also showed a decrease in sales at electronics and appliance stores, while clothing sales were flat. But discretionary spending did pick up in other areas, with U.S. shoppers spending more on cars, furniture and restaurant meals. Shoppers were also helped by easing inflation in October , with the consumer price index rising less-than-expected last month. At the same time, quarterly earnings at giant U.S. discount retailers Walmart (WMT) and Target (TGT) painted a mixed picture. Walmart delivered an earnings beat for its fiscal third quarter, with groceries helping to boost sales by nearly 9%.Target also benefited from grocery sales last month, but saw a steep sales decline overall, as spending softened for apparel and electronics. “High fuel prices and mid-teens food inflation have forced consumers to manage household budgets more tightly, making frequent trade-offs and biasing spending toward everyday essentials,” Walmart CFO John David Rainey said Tuesday. Walmart is a “well-positioned” food retailer because it has “relatively low discretionary exposure,” according to analysts at Bank of America. But Target, which is more exposed to discretionary spending, faces “rapidly softening demand,” CEO Brian Cornell said Wednesday. Meanwhile, Costco’s most recent quarterly results, for its fiscal fourth quarter, demonstrated the membership-only wholesale retailer — whereby customers buy in bulk at a discount — can deliver in any kind of economic environment . Bank of America sees “upside” for Costco as one of the best food retailers that can offer unparalleled value to inflation-pinched consumers, analysts wrote in a note Wednesday. Another edge that Costco has is that it sells gasoline, which it offers at lower warehouse prices. More broadly, Costco has benefited from robust customer traffic growth, strong membership renewal rates, solid same-store sales and a growing international segment, according to BofA. Costco is set to report fiscal first-quarter results on Dec. 8. Bottom line Consumer spending on staples like food remains strong, while discretionary spending has been mixed, as inflation and other macroeconomic pressures persist. Costco has faced economic headwinds, too, but has been able to navigate them more deftly due to its low-cost, high-volume business model, which allows it to price goods cheaper than its competitors. Furthermore, Costco sells a combination of grocery and discretionary items at value. Unlike many retailers, Costco breaks out monthly same-store sales data , which has consistently shown year-over-year growth. Importantly, Costco has an edge with its…
Read More: Consumer spending rises Costco remains discount retailer to own