The day after Thanksgiving is the official kick-off to the holiday shopping season, and this year the focus will be on bargains. According to our ChangeWave Research surveys, most consumers will be doing their shopping at discount stores and online.
Discount retailer Costco (COST) does one-third of its overall business in southern California and Nevada, where the unemployment rate is higher than the national average. Because a disproportionate amount of Costco's warehouse and distribution facilities are located in southern California and the supply chain is relatively more efficient, this geographic region has historically had the highest margins. Over the past year, though, this region suffered the worst of the economic downturn and has been a big drag on Costco's profits.
But what goes down often comes back up, and analysts expect COST to post better comparable-store sales into early next year. If the southland business revives for Costco, we should see rising profit margins (by as much as 10%) on rising sales. And this should equate to strong earnings leverage.
Between now and the end of the year, COST should lay out a feast of positive news that should take the stock even higher into next year. We're betting COST call options will give you something to be very thankful for.
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