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Costco (COST) Rides on Business Model and Pricing Power
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Being a consumer defensive stock, Costco Wholesale Corporation (COST - Free Report) has been surviving the market turmoil pretty well. Strategic investments, a customer-centric approach, merchandise initiatives and an emphasis on memberships have been the discount retailer’s primary strengths.
A Dominant Warehouse Retailer
This Issaquah, WA-based company continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Costco's distinctive membership business model and pricing power set it apart from traditional players. Amid rising prices, low-to-middle-income consumers have preferred discount stores over conventional retailers.
Cumulatively, these factors have been aiding Costco in registering decent sales numbers. Costco’s net sales increased 1.2% to $18.45 billion for the retail month of May from $18.23 billion last year. The metric grew 1.9% year over year to $52,604 million in the third quarter of fiscal 2023.
Image Source: Zacks Investment Research
No wonder, the company’s total paid members have been rising. Its growing customer base and high renewal rates have been fueling sales. Membership fees increased 6.1% to $1,044 million in the third quarter. The company ended the quarter with 69.1 million paid household members and 124.7 million cardholders.
Costco is gradually adopting the omnichannel mantra to provide a seamless shopping experience. Its acquisition of Innovel Solutions, a leading provider of third-party end-to-end logistics solutions — now called Costco Logistics — has boosted its e-commerce capabilities and enabled it to sell "big and bulky" items.
The company has been gradually expanding its e-commerce capabilities in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.
Costco also remains committed to opening new clubs in the domestic and international markets. In our view, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets. After opening 13, 20 and 23 net new warehouses in fiscal 2020, 2021 and 2022, respectively, Costco plans to open 23 net new units in fiscal 2023. We foresee an improvement in membership fees as new warehouse openings ramp up.
Wrapping Up
The strategy to sell products at discounted prices has helped Costco draw customers who have been seeking both value and convenience. Costco has exhibited a decent run on the bourse so far in the year.
Due to its operational initiatives — a customer-centric approach, an emphasis on the membership program and a focus on value offerings — the stock has outpaced the Zacks Retail-Discount industry. In the said period, shares of this Zacks Rank #3 (Hold) company have increased about 14.4% against the industry’s decline of 1%.
The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 2.6% and 6.9%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5% from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Costco (COST) Rides on Business Model and Pricing Power
Being a consumer defensive stock, Costco Wholesale Corporation (COST - Free Report) has been surviving the market turmoil pretty well. Strategic investments, a customer-centric approach, merchandise initiatives and an emphasis on memberships have been the discount retailer’s primary strengths.
A Dominant Warehouse Retailer
This Issaquah, WA-based company continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Costco's distinctive membership business model and pricing power set it apart from traditional players. Amid rising prices, low-to-middle-income consumers have preferred discount stores over conventional retailers.
Cumulatively, these factors have been aiding Costco in registering decent sales numbers. Costco’s net sales increased 1.2% to $18.45 billion for the retail month of May from $18.23 billion last year. The metric grew 1.9% year over year to $52,604 million in the third quarter of fiscal 2023.
Image Source: Zacks Investment Research
No wonder, the company’s total paid members have been rising. Its growing customer base and high renewal rates have been fueling sales. Membership fees increased 6.1% to $1,044 million in the third quarter. The company ended the quarter with 69.1 million paid household members and 124.7 million cardholders.
Costco is gradually adopting the omnichannel mantra to provide a seamless shopping experience. Its acquisition of Innovel Solutions, a leading provider of third-party end-to-end logistics solutions — now called Costco Logistics — has boosted its e-commerce capabilities and enabled it to sell "big and bulky" items.
The company has been gradually expanding its e-commerce capabilities in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.
Costco also remains committed to opening new clubs in the domestic and international markets. In our view, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets. After opening 13, 20 and 23 net new warehouses in fiscal 2020, 2021 and 2022, respectively, Costco plans to open 23 net new units in fiscal 2023. We foresee an improvement in membership fees as new warehouse openings ramp up.
Wrapping Up
The strategy to sell products at discounted prices has helped Costco draw customers who have been seeking both value and convenience. Costco has exhibited a decent run on the bourse so far in the year.
Due to its operational initiatives — a customer-centric approach, an emphasis on the membership program and a focus on value offerings — the stock has outpaced the Zacks Retail-Discount industry. In the said period, shares of this Zacks Rank #3 (Hold) company have increased about 14.4% against the industry’s decline of 1%.
3 Stocks Looking Red Hot
Here we have highlighted three better-ranked stocks, namely Kroger (KR - Free Report) , The TJX Companies (TJX - Free Report) and Walmart (WMT - Free Report) .
Kroger, a supermarket operator, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 2.6% and 6.9%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5% from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.