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Costco (COST) Rides on Business Model and Pricing Power
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Costco Wholesale Corporation (COST - Free Report) , an esteemed player in the retail discount space, has showcased a robust performance in the stock market year to date. Driven by its strategic operational endeavors, including a customer-centric business approach, a strong emphasis on its membership program and a commitment to delivering value-oriented offerings, the company's stock has marched ahead of the Zacks Retail-Discount industry.
Being a consumer defensive stock, Costco has been surviving the market turmoil pretty well. Year to date, shares of this Zacks Rank #3 (Hold) company have rallied about 20.9% against the industry's decline of 1.1%.
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. The company's distinctive membership business model and pricing power set it apart from traditional players. Low-to-middle-income consumers have preferred discount stores over conventional retailers to meet their day-to-day needs. Cumulatively, these factors have been aiding Costco in registering decent sales numbers.
Costco’s net sales increased 6% to $22.75 billion for the retail month of September from $21.46 billion last year. Comparable sales for the retail month of September — the five-week period ended Oct 1, 2023 — increased 4.5%. This reflects improvements of 3.2%, 6.7% and 10% in the United States, Canada and Other International locations, respectively.
Image Source: Zacks Investment Research
Growing Membership Base
Costco’s total paid members have been rising. Its growing customer base and high renewal rates have been fueling sales. Membership fees increased 13.7% to $1,509 million in the fourth quarter of fiscal 2023. The company ended the quarter with 71 million paid household members.
We expect Costco’s total paid members to be approximately 73.4 million at the end of fiscal 2024, representing an increase of 3.4% from fiscal 2023. We also estimate a 3.7% jump in net sales and a 3.6% rise in total membership fees for fiscal 2024. These translate into an estimated revenue improvement of 3.7% for the fiscal year.
Market Penetration
Through a calculated approach that involves identifying untapped markets and tailoring offerings to meet customer preferences, Costco has managed to deepen its roots. This retail bellwether has been steadily expanding its footprint through new club openings in the domestic and international markets. Costco also operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.
Costco opened 23 net new units in fiscal 2023. We foresee an improvement in membership fees as new warehouse openings ramp up. As of Oct 18, 2023, Costco operates 861 warehouses, including 591 in the United States and Puerto Rico, 107 in Canada, 40 in Mexico, 33 in Japan, 29 in the United Kingdom, 18 in Korea, 15 in Australia, 14 in Taiwan, five in China, four in Spain, two in France and one each in Iceland, New Zealand and Sweden.
Wrapping Up
A favorable product mix, steady store traffic, pricing power and a strong liquidity position should help Costco continue outperforming. The strategy to sell products at discounted prices has helped Costco draw customers who have been seeking both value and convenience amid rising prices.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales and earnings suggests growth of 11.2% and 4.9%, respectively, from the year-ago reported numbers. GO has a trailing four-quarter earnings surprise of 14.3%, on average.
Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings indicates growth of 7.1% and 19.4%, respectively, from the year-ago reported numbers. ROST has a trailing four-quarter earnings surprise of 11.4%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Walmart’s current financial-year sales and earnings implies growth of 5% and 2.2%, respectively, from the year-ago reported numbers. WMT has a trailing four-quarter earnings surprise of 11.6%, on average.
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Costco (COST) Rides on Business Model and Pricing Power
Costco Wholesale Corporation (COST - Free Report) , an esteemed player in the retail discount space, has showcased a robust performance in the stock market year to date. Driven by its strategic operational endeavors, including a customer-centric business approach, a strong emphasis on its membership program and a commitment to delivering value-oriented offerings, the company's stock has marched ahead of the Zacks Retail-Discount industry.
Being a consumer defensive stock, Costco has been surviving the market turmoil pretty well. Year to date, shares of this Zacks Rank #3 (Hold) company have rallied about 20.9% against the industry's decline of 1.1%.
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. The company's distinctive membership business model and pricing power set it apart from traditional players. Low-to-middle-income consumers have preferred discount stores over conventional retailers to meet their day-to-day needs. Cumulatively, these factors have been aiding Costco in registering decent sales numbers.
Costco’s net sales increased 6% to $22.75 billion for the retail month of September from $21.46 billion last year. Comparable sales for the retail month of September — the five-week period ended Oct 1, 2023 — increased 4.5%. This reflects improvements of 3.2%, 6.7% and 10% in the United States, Canada and Other International locations, respectively.
Image Source: Zacks Investment Research
Growing Membership Base
Costco’s total paid members have been rising. Its growing customer base and high renewal rates have been fueling sales. Membership fees increased 13.7% to $1,509 million in the fourth quarter of fiscal 2023. The company ended the quarter with 71 million paid household members.
We expect Costco’s total paid members to be approximately 73.4 million at the end of fiscal 2024, representing an increase of 3.4% from fiscal 2023. We also estimate a 3.7% jump in net sales and a 3.6% rise in total membership fees for fiscal 2024. These translate into an estimated revenue improvement of 3.7% for the fiscal year.
Market Penetration
Through a calculated approach that involves identifying untapped markets and tailoring offerings to meet customer preferences, Costco has managed to deepen its roots. This retail bellwether has been steadily expanding its footprint through new club openings in the domestic and international markets. Costco also operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.
Costco opened 23 net new units in fiscal 2023. We foresee an improvement in membership fees as new warehouse openings ramp up. As of Oct 18, 2023, Costco operates 861 warehouses, including 591 in the United States and Puerto Rico, 107 in Canada, 40 in Mexico, 33 in Japan, 29 in the United Kingdom, 18 in Korea, 15 in Australia, 14 in Taiwan, five in China, four in Spain, two in France and one each in Iceland, New Zealand and Sweden.
Wrapping Up
A favorable product mix, steady store traffic, pricing power and a strong liquidity position should help Costco continue outperforming. The strategy to sell products at discounted prices has helped Costco draw customers who have been seeking both value and convenience amid rising prices.
3 Stocks Looking Red Hot
Here, we have highlighted three better-ranked stocks, namely Grocery Outlet (GO - Free Report) , Ross Stores (ROST - Free Report) and Walmart (WMT - Free Report) .
Grocery Outlet, an extreme value retailer of quality, name-brand consumables and fresh products, currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year sales and earnings suggests growth of 11.2% and 4.9%, respectively, from the year-ago reported numbers. GO has a trailing four-quarter earnings surprise of 14.3%, on average.
Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings indicates growth of 7.1% and 19.4%, respectively, from the year-ago reported numbers. ROST has a trailing four-quarter earnings surprise of 11.4%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Walmart’s current financial-year sales and earnings implies growth of 5% and 2.2%, respectively, from the year-ago reported numbers. WMT has a trailing four-quarter earnings surprise of 11.6%, on average.