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Costco Wholesale Corporation (COST): Baby Boomers Can Make You Money

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Costco Wholesale Corporation (NASDAQ:COST)Costco Wholesale Corporation (NASDAQ:COST) has a lot going for it at the moment. With 50 million members, it’s evident that Costco is here to stay. More importantly, Costco continues to grow. Since Costco is seeing same-store sales growth both domestically and internationally, the company’s expansion plans make sense. We’ll look at many other positives for Costco Wholesale Corporation (NASDAQ:COST), and we’ll also take a look at its biggest competitor — Wal-Mart Stores, Inc. (NYSE:WMT)’s Sam’s Club.

Costco continues to improve

Costco is the proud owner of 618 member warehouses, 447 of which are located in the United States and Puerto Rico. Member warehouses are also located in Canada, Mexico, the United Kingdom, Japan, Taiwan, South Korea, and Australia. Needless to say, global exposure is good, and it’s only going to increase.

According to Alexa.com, Costco Wholesale Corporation (NASDAQ:COST) has a strong online presence, ranking No. 1,128 in the world and No. 231 in the United States for online traffic. Pageviews-per-user and time-on-site have been close to even over the past three months. A more important stat is that the most overrepresented age demographic is 55+. As baby boomers continue to retire in droves, they’re incomes will not be as strong as they had been in the past. This, in turn, will lead these retirees to search for bargains. They can find those bargains at places like Costco Wholesale Corporation (NASDAQ:COST), Sam’s Club, Wal-Mart, and Target Corporation (NYSE:TGT).

While Wal-Mart Stores, Inc. (NYSE:WMT) is a great bargain-shopping option for a substantial portion of the population, many of these baby boomers wouldn’t be seen in a Wal-Mart on a bet. Some may choose to shop at Target Corporation (NYSE:TGT), thanks to its reputation for cleanliness and a more presentable crowd. But many will opt for Costco, which is the classiest option of the bunch. Furthermore, most Costco shoppers have above-average incomes as Costco only accepts cash, debit cards, and American Express. This customer base has allowed Costco memberships to increase even during recessions.

Costco Wholesale Corporation (NASDAQ:COST) recently increased its membership fees. This is important, because the majority of the company’s revenue comes from membership fees. An Executive Membership now costs $110 per year (2% rewards on all purchases), a Business Membership costs $55 per year (can purchase products for resale/includes household membership), and a Gold Star Membership costs $55 per year (household membership.) Increased membership fees are good news for investors as it increases revenue.

In comparison, Sam’s Club is a little cheaper. Sam’s Plus costs $100 per year (businesses and individuals enjoy instant savings and extra protection service plan.) Sam’s Business costs $45 per year (early shopping hours plus instant savings.) And Sam’s Savings costs $45 per year (members-only prices.)

Sam’s Club doesn’t have as strong of an online presence as Costco, but its traffic rankings are still very respectable — No. 1,817 globally and No. 385 domestically.

Costco vs. peers

Costco Wholesale Corporation (NASDAQ:COST) has seen an average monthly sales growth just north of 7% so far this year. Same-store sales increased 4% in April and 5% in May. Total net sales also increased 7% in May. Costco sports a profit margin of just 1.94%, but that shouldn’t be looked at as a negative considering revenue is primarily based on membership fees. Other fundamental positives include a debt-to-equity ratio of 0.46 versus an industry average of 0.70, and a 1.10% yield. However, Costco is a little expensive, trading at 24 times earnings.

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