Costco Wholesale Corporation
In this profile, we examine Costco's impressive track record and consider whether future growth prospects are likely to justify today's lofty valuation.
Costco operates a chain of 840 membership warehouses located in thirteen countries. Warehouses feature well known branded merchandise sold at prices far below conventional retailers as well as Costco’s Kirkland Signature private label which has earned a reputation for delivering quality on par with or better than national brands. Warehouses have few frills or amenities and average 146,000 square feet. Costco strives to deliver products to customers at the lowest possible gross margin, creating an undeniably compelling value proposition.
Costco’s low prices are available only to customers who purchase an annual membership. There are 118.9 million Costco cardholders representing 65.8 million paid memberships. In the United States, a Gold Star membership costs $60 and provides basic access to warehouses while a $120 Executive membership provides additional benefits including the opportunity to earn reward certificates worth up to $1,000 per year. Members renew at rates in excess of 90 percent and are known to be very loyal shoppers.
In Costco’s latest fiscal year, the company posted revenue of $227 billion, operating income of $7.8 billion, and net income of $5.8 billion. The market has rewarded Costco’s long track record of profitability and growth with a valuation of $220 billion assigning the shares a premium multiple of 38 times trailing earnings. In this report, we will examine Costco’s business and consider whether the market’s positive assessment is justified.
The rest of this profile of Costco can be downloaded by using the link below.
The data used in the report is available in Microsoft Excel format:
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No position in Costco Wholesale Corporation.
Thoroughly enjoyed the write up!
Curious how EV adoption through 2032 impacts the gasoline business. I have yet to read more about the gasoline business outside of what's in the report. It seems they operate at a much lower margin than merchandise. I'm guessing this also results in lower gasoline prices than comparable gas stations? Interested to see if they can operate EV stations with a similar cost / pricing strategy as the current gasoline model?
In Pilot's case, I understand how transitioning to EV stations will still attract customers to the high margin store products (maybe more so with longer charge times). This same dynamic could help Costco if customers who charge then have to go shop for 30min+. Does the charging advantage stop there? Will EV stations solely provide that benefit (shop while you wait) and no longer attract consumers because the cost of charging is lower?
Just some thoughts on this. Thanks again for the report!
Thank you, great read and extensive write up. Helped me understand Costco and I am very interested in investing in Costco. However can't justify paling these prices haha