Rising gas prices drive more people to Costco for cheaper fuel. But the real benefit to the retailer is the additional sales that come from the accompanying in-store traffic boost. With the Iran war in its fourth week and U.S. oil prices soaring to highs not seen in four years, the national average for a gallon of regular unleaded gasoline was $3.91, according to AAA on Friday. While short of the all-time high of $5.02 in April 2022, gas prices over the past month have spiked by roughly $1 per gallon. Gas prices vary widely from state to state, with New York about 13 cents below the national average and California about $1.75 above. “When we historically see increasing prices at the pump, it’s simply good for Costco,” Jeff Marks, director of portfolio analysis for the Investing Club, said during Friday’s Morning Meeting. “People go maybe the extra mile or two to get that lower price, and while they’re at the gas station, they’ll take a look in the store.” During its most recent earnings call on March 5, CFO Gary Millerchip forecasted that Costco would be a beneficiary of higher oil prices. “If gas prices start to increase, then we tend to see our value proposition resonates better with members, just because obviously we want to be the pricing authority on gas.” Costco typically offers gas prices at a 9-cent-per-gallon discount versus the top five local competitors and a 24-cent discount versus the state average, according to Gordon Haskett. Those savings are more meaningful as fuel costs rise because inflation-weary consumers start to look for bargains wherever they can find them. According to Gordon Haskett’s analysis of weekly and monthly foot traffic trends, visits to Costco gas stations “inflected sharply” in the week ended March 7, and continued to accelerate as prices moved higher. In a Friday note to clients, the analysts said the “cross-hop from fuel customers to in-warehouse remains 50%,” meaning half of gas customers also go inside Costco stores. So, more fuel trips mean more in-store traffic. In a separate note Friday, JPMorgan also called Costco a beneficiary of higher gas prices. “Elevated gas prices tend to drive trips to the club,” the analysts wrote. The recent surge in oil prices — and subsequently gas prices — stems from massive supply disruptions due to the Mideast 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 mountain Brent vs. WTI YTD Brent crude , the international oil benchmark, rose 2% on Friday and about 10% week to date. West Texas Intermediate crude , the U.S. oil standard, also rose 2% on Friday but was relatively flat for the week. Brent and WTI both briefly spiked above $119 back on March 9. Since the U.S. and Israel attacked Iran on Feb. 28, Brent has gained roughly 50%, and WTI has surged 45%. To be sure, oil spikes in the short term add financial pressure on consumers who start to scrutinize…
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