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Costco Wholesale Corporation (COST), Wal-Mart Stores, Inc. (WMT), Chipotle Mexican Grill, Inc. (CMG): How Should You Play It?

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Costco Wholesale Corporation (COST)Socially responsible investing has gained a lot of attention over the last couple of years, and for good reason. Some companies allow shareholders to sleep better at night by knowing they are investing in businesses with a positive impact to society as a whole, and they can also be outstandingly profitable from a purely economic perspective. When your conscience and your wallet are pointing in the same direction, investing decisions become a no brainer.

The anti-Wal-Mart

Although Costco Wholesale Corporation (NASDAQ:COST) is usually compared to Wal-Mart Stores, Inc. (NYSE:WMT)‘s Sam´s Club, the two companies couldn’t be more dissimilar in their values and strategy. In fact, a 2005 article from The New York Times Company (NYSE:NYT) actually described Costco Wholesale Corporation (NASDAQ:COST) as “the anti-Wal-Mart Stores, Inc. (NYSE:WMT)” based on the multiple differences among both companies when it comes to issues like labor relations.

While Wal-Mart Stores, Inc. (NYSE:WMT) has been widely criticized because of its insufficient wages, poor working conditions, and low benefits; Costco Wholesale Corporation (NASDAQ:COST) has chosen a very different approach. Costco’s average pay in 2005 was $17 an hour, 42% higher than at Sam’s Club according to the The New York Times Company (NYSE:NYT). The same article stated that Costco´s health insurance covered 96% of the company´s workforce, a big contrast versus a coverage rate of only 44% offered by Wal-Mart.

Costco Wholesale Corporation (NASDAQ:COST) understands that it needs to spend more resources on its employees if it’s going to attract the best talent, keep people motivated, and reduce employee turnover. And this hasn´t just been a positive for employees and for society as a while, investors are reaping the benefits of superior operating and financial performance at the company.

Costco Wholesale Corporation (NASDAQ:COST) delivered a 5% increase in same store sales during the last quarter, far better than the 1.2% growth rate reported by Wal-Mart Stores, Inc. (NYSE:WMT) for the same quarter. And this was no exception at all; the company has been outgrowing Wal-Mart and other competitors for a long time: revenue has increased at a 9% annually over the last five years at Costco versus a 4.5% growth rate for Wal-Mart Stores, Inc. (NYSE:WMT) in the same period.

Costco Wholesale Corporation (NASDAQ:COST) makes most of its profits from membership fees while selling its products at zero profit or even at a loss. This generates amazing advantages when it comes to cost competitiveness, which is especially valuable in items like food and fuel. Judging by the membership renewal rates in the area of 85%-90%, customers are quite happy with this business model and the benefits of shopping at Costco.

Even in a tough and extremely competitive business like mass retail, Costco Wholesale Corporation (NASDAQ:COST) has proven its ability to contemplate the needs of its employees, customers and investors, all at the same time. At the end of the day, it shouldn´t come as a big surprise that happy and productive employees, coupled with a loyal and satisfied customer base provide a big advantage when it comes to generating superior returns for shareholders.

Put your money where your mouth is

McDonald’s Corporation (NYSE:MCD) is still the undisputed leader in the fast food business on a global scale, so this heavy-weight champion will continue generating big cash flows and dividends due to its recognizable brand and wide geographical reach. But the company is facing serious headwinds as consumers move towards healthier eating options in detriment of those deliciously fattening hamburgers

Conscious eating is becoming a big thing all over the world due to problems like rising obesity and other health issues, especially when it comes to children, so McDonald’s Corporation (NYSE:MCD) has been broadening its lines of products to include more salads, wraps, and sandwiches with fewer calories. The company will likely find ways to adapt to changing consumer habits, but for investors looking to capitalize the healthy eating trend, the house of the Big Mac is hardly the best choice.

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