ii view: Costco delivers double-digit growth online

First-quarter results to 24 November  

• Revenue up 7.5% to $62.15 billion
• Adjusted earnings up 12.8% to $4.04 per share
• Dividend payment unchanged at $1.16 per share 

ii round-up:

Members-only retailer Costco Wholesale Corp (NASDAQ:COST) reported sales and earnings that beat Wall Street expectations, aided by growth in e-commerce sales. 

Demand for products including jewellery and home furnishings fuelled online growth of 13% year-over-year, taking overall first quarter group-wide revenue up 7.5% to $62.15 billion. Adjusted earnings per share rose 12.8% to $4.04 per share. Analysts had expected revenues of $62.1 billion and earnings of $3.80 per share. 

Shares in the S&P 500 company rose marginally in post results trading having come into these latest results up by a half year-to-date. That’s similar to Amazon.com Inc (NASDAQ:AMZN) but behind a four-fifths gain for rival Walmart Inc (NYSE:WMT). The S&P itself is up by just over a quarter in 2024. 

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Costco operates 897 warehouses globally including 617 in the USA, 109 in Canada, 41 in Mexico, 7 in China and 29 across the UK. 

Website traffic for its eight websites globally increased 16% year over year, with average order values climbing 4%. 

Revenue from membership fees gained 7.8% during the period, with Costco’s membership base climbing to almost 139 million cardholders at a renewal rate of 90%. Membership fees for 2024 were $4.8 billion. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging target price of $1,150 per share. 

A post-holiday season trading update is scheduled for 5 February. 

ii view:

Started in 1983, Costco today employs 333,000 people. Headquartered in Issaquah, Washington state, on the West coast, its home US business generated by far its biggest slice of revenues in the year to late August at 72%. That was followed by Canada at 13.7% and other combined international businesses with the balance of almost 14%.  

For investors, pressured consumer spending and no guarantee of further interest rate rises should not be forgotten. Costs for businesses generally remain elevated. An forward price/earnings (PE) ratio above the three and 10-year averages may suggest the shares are not obviously cheap, while the group’s e-commence operations lack the scale of rival Amazon. 

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On the upside, diversity of revenue streams includes both membership fees and product sales, with the group’s geographical footprint also extensive. Internet sales are growing, scope for overseas expansion persists, particularly in China, while Costco’s membership model enables ongoing investment in competitive product pricing.    

In all, and despite continued risks, this value orientated retailer looks to remain worthy of its place in many diversified investor portfolios. 

Positives: 

• Product diversity
• Value orientated

Negatives:

• Intense competition
• Subject to currency moves

The average rating of stock market analysts:

Buy