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Costco Wholesale Corporation (COST) Posted Another Strong Quarter

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Costco Wholesale Corporation (COST)Warehouse club giant Costco Wholesale Corporation (NASDAQ:COST) reported another strong quarter last week, with sales up 8% and earnings up 19% year over year. Costco Wholesale Corporation (NASDAQ:COST) continues to see strong traffic growth as customers appreciate its industry-leading prices. This has driven increases in the company’s membership base, and has also allowed Costco to gradually increase membership fees.

Meanwhile, the company’s plans to open an average of 30 new warehouses each year for the next five years remain on track. Costco has plenty of room for international growth, since more than 90% of its warehouses are located in North America today. Costco Wholesale Corporation (NASDAQ:COST) seems poised to seize the opportunities it has in Asia and Europe, where it faces less competition than in North America.

Earnings recap
For the 12 weeks ending on May 12, Costco achieved a solid 5% increase in comparable-store sales. Excluding the effects of currency and gasoline price changes, that figure would have been 7%. Membership income, which accounts for nearly 75% of Costco’s pre-tax earnings, grew 12% to $531 million, due to increases in the membership base and the lingering effects of a membership price hike from late 2011.

One of the best things for shareholders about Costco Wholesale Corporation (NASDAQ:COST)’s business is its stability. From quarter to quarter and year to year, Costco tends to exhibit steady improvement in sales and earnings, driven by membership increases and stable or slightly expanding margins. For example, last quarter, merchandise gross margin widened slightly, from 10.6% to 10.7%, while SG&A declined slightly as a percentage of merchandise sales: from 9.85% to 9.82%.

Although these margin changes are almost imperceptible, they helped increase non-membership income by more than 30%: from $154 million to $201 million. Since Costco Wholesale Corporation (NASDAQ:COST) has annual sales of $100 billion, even small margin improvements — combined with steady sales growth — can have a noticeable impact on profitability.

Opportunity abounds
One of the biggest reasons to like Costco Wholesale Corporation (NASDAQ:COST) is that the company is getting ready to expand more aggressively in international markets. Today, 85% of Costco’s warehouses are in the U.S. and Canada. Costco operates fewer than 100 warehouses outside of those two core markets, most of which are in Mexico and the U.K., with smaller numbers in Japan, South Korea, Taiwan, and Australia.

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