Yet Costco’s international operations tend to be more profitable than its U.S. business. In part, that is because Costco has only pursued the highest-value opportunities internationally. However, another major factor is that there are very few competitors in the warehouse-club business outside of North America. By contrast, Costco competes heavily with Wal-Mart Stores, Inc. (NYSE:WMT)‘s Sam’s Club warehouses and privately owned BJ’s Wholesale Club in North America.
Accordingly, of the 150 warehouses Costco plans to open in the next five years, less than half will be in the U.S. (the company’s best estimate is 55, according to the conference call). The company plans to ramp up its expansion in Mexico, where it only has 33 warehouses today but Sam’s Club has more than 100. Costco Wholesale Corporation (NASDAQ:COST) will also increase its presence in its Asian markets, where the discount warehouse concept is relatively new but rapidly growing in popularity.
Get on board
Costco may seem a little pricey, as it trades for 23.6 times expected fiscal year 2014 earnings. However, for that price you get a company that has a big moat — i.e., price leadership — very consistent growth, and an opportunity to grow its margins by expanding in international markets where it faces little or no direct competition. Costco Wholesale Corporation (NASDAQ:COST)‘s international expansion should drive solid earnings growth for years to come, making this a good stock for long-term investors to consider.
The article Costco Posted Another Strong Quarter originally appeared on Fool.com and is written by Adam Levine-Weinberg.
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