Costco turns pain at the gas pump into a powerful in-store traffic driver
Rising gas prices are driving more people to Costco for cheaper fuel. However, the real benefit to the retailer is the additional sales resulting from increased in-store traffic. With the Iran war in its fourth week and U.S. oil prices rising to levels not seen in four years, the national average for a gallon of regular unleaded gasoline was $3.91, according to AAA on Friday. Gasoline prices rose nearly $1 per gallon last month, though they remain below the all-time high of $5.02 set in April 2022. Gasoline prices vary widely from state to state; New York is about 13 cents below the national average, while California is about $1.75 above. “When we’ve seen prices go up at the pump in the past, that’s a good thing for Costco,” Jeff Marks, the Investment Club’s director of portfolio analysis, said during Friday’s Morning Meeting. “People will drive maybe an extra mile or two to get the lower price, and while they’re at the gas station, they’ll take a look at the store.” During its last earnings call on March 5, CFO Gary Millerchip predicted that Costco would benefit from higher oil prices. “If gas prices start to rise, we tend to see our value proposition resonate better with members, because of course we want to be the pricing authority on gas.” According to Gordon Haskett, Costco typically offers gas prices at a discount of 9 cents per gallon compared to its top five local competitors and a discount of 24 cents per gallon compared to the state average. As fuel costs rise, these savings become more meaningful because consumers fed up with inflation begin to look for affordable products wherever they can find them. Visits to Costco gas stations were “hard hit” in the week ending March 7 and continued to accelerate as prices rose, according to Gordon Haskett’s analysis of weekly and monthly foot traffic trends. In a note to customers Friday, analysts said “the shift from fuel customers to storage remains at 50%,” meaning half of gas customers also go to Costco stores. Therefore, more fuel consumption means more in-store traffic. In a separate note published Friday, JPMorgan also called Costco a beneficiary of high gas prices. “Rising gas prices are increasing club visits,” analysts wrote. The recent rise in oil prices, followed by gas prices, is due to major supply disruptions due to the Middle East conflict, which has resulted in the effective closure of the Strait of Hormuz, a critical oil transport route located just off Iran’s coastline. @LCO.1 @CL.1 YTD Mount Brent vs. WTI YTD Brent crude, the international oil benchmark, is up 2% on Friday and nearly 10% since the start of the week. West Texas Intermediate crude, the U.S. oil standard, also rose 2% on Friday but remained relatively flat throughout the week. Brent and WTI briefly rose above $119 on March 9. Since the US and Israel attacked Iran on February 28, Brent has increased by nearly 50% and WTI by 45%. Of course, in the short term, gains in oil increase financial pressure on consumers who begin to examine inevitable expenses like gas and look for discounts at Costco. They’re also pulling back from non-essentials, like resorting to value-seeking shopping behaviors (to Costco again) or reducing spending in general. If the conflict continues, these dynamics could harm the economy because two-thirds of U.S. gross domestic product growth comes from consumer spending. Prolonged high gas prices could also reignite worrying inflation. For these reasons, the Federal Reserve kept interest rates steady at its policy meeting this week, which could make it difficult to cut further rates this year. The environment of slowing economic growth and rising inflation will make things even more difficult for all retailers; but Costco tends to perform better in tough times due to its efforts to keep prices as stable as possible. As a result, Jim Cramer, looking at Costco’s stock chart, said Friday: “This sounds like a boom to me.” While the members-only retailer’s shares fell more than 1% last month, Jim said shares are poised to rise even further. Shares are up 13% year to date, outperforming the S&P 500, which is down about 5% in 2026 as of Friday afternoon trading. COST .SPX YTD mountain Costco vs S&P 500 YTD “I think Costco is the winner,” Jim added. We halved our Costco position to preserve our gains after a tough decline in mid-December. The sale of approximately $850 per share represented a 200% gain on shares purchased at the beginning of 2020. We have kept enough stock to cover the possibility of a recovery in stocks that is currently underway. Shares are up 15% since that trade. We have an equivalent rating of 2 and a price target of $1,100 on the stock, representing a 13% upside from Thursday’s close. (Jim Cramer’s Charitable Trust has a long cost. See here for a complete list of stocks.) When you subscribe 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 trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
