Costco, Bed Bath & Beyond Show the 2 Sides of Retail

The stock market remained choppy on Friday morning, as investors responded to the latest numbers on the employment front. With the US economy adding 223,000 jobs in December and the unemployment rate dropping to 3.5%, some market participants fear that the Federal Reserve might choose to hike interest rates further than they want and potentially spark a recession. Others appreciate that the economy has been resilient in the face of tighter monetary policy, though. That debate had stock index futures moving sharply in both directions early Friday before the open of the regular trading session, although it appeared bullish investors might win out as of 9 am ET.

Consumers are responsible for a huge portion of the overall economy, so what happens in the retail industry has a key impact on the broader picture for stock investors. The latest news from Costco Wholesale (COST -1.40%) other Bed Bath & Beyond (BBBY -29.88%) makes it clear that there are still pockets within retail that face very different conditions from each other, and their shareholders are seeing that more clearly than ever.

Costco finishes the year strong

Shares of Costco Wholesale were up 3% in premarket trading on Friday morning. The warehouse retail giant reported sales figures for December that showed building momentum through the end of 2022 that shareholders hope will continue into the new year.

Costco reported sales of $23.8 billion for the five-week period that ended Jan. 1. That was up 7% year over year, and comparable sales companywide rose 5.5%. The gains were even stronger when you take gasoline prices and foreign exchange headwinds into account, as Costco announced adjusted comps growth of 7.3%.

The results marked a solid end to the year for Costco. Over the last 18 weeks of the calendar year, Costco’s sales of $82.16 billion were up 7.6% from the same period a year ago, with comparable sales figures coming in up 6.1% on an unadjusted basis and 7.1% after accounting for foreign exchange and gasoline price changes.

Just about the only troubling number in Costco’s report was that e-commerce sales have been on the decline year over year. However, given the dramatic upticks in its online channel due to pandemic-related effects during much of 2021, it’s not surprising to see some pullback in those numbers, and investors seem comfortable with the ability of Costco’s customers to spend even in a challenging economic environment .

Bed Bath & Beyond faces going-concern questions

Shares of Bed Bath & Beyond shed another 13% in premarket trading Friday morning. The move lower followed a 30% plunge on Thursday as the home goods retailer questioned its ability to continue to operate.

The decline started after Bed Bath & Beyond provided a business update that projected a huge drop in revenue due to lower customer traffic and reduced inventory levels. The company expected losses to rise from year-earlier levels, including impairment charges that wiped out savings from newly imposed cost controls.

Most troubling was the statement late in the update, in which the company expressed its doubt in its ability to continue as a going concern. It also mentioned potential relief under the bankruptcy code as a possible strategic alternative.

Since that opening news, reports have swirled about the possible timing of a bankruptcy filing if it comes. With the high probability that shareholders would receive nothing in a bankruptcy proceeding, it’s apparent from Bed Bath & Beyond’s ongoing descent that most investors have lost confidence in the retailer’s ability to get past its numerous challenges.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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