Costco’s Impressive Quarter and More
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Economic uncertainty is never good for companies and their financial performance. But this is not always true. There are some exceptions that benefit from the situation. Costco (NASDAQ: COST) is among those companies which have done well in the last few quarters due to a strategy of selling goods at unusually lower prices compared to other supermarkets at the cost of a small annual membership fee. This was reaffirmed by its third quarter results which beat Mr. Market’s expectations. Let’s dig into its recent performance.
Performance in Green!
Lower tax rate and higher gasoline prices helped revenue shoot up 8% to $21.85 billion and earnings by an impressive 20.5% to 88 cents a share. Even though the increase in gasoline prices was offset by the negative effect of foreign exchange movement, the comparable store sales surged by 5%. The company also witnessed a surge of 9.2% in membership fee revenues driven by the hike in the fees made a few months back.
The key strategy of the company which worked in this sluggish economy was the fact that it provides all range of products possible, especially the daily needs products, at huge discounts even though it requires a membership charge which is made up by the savings through the discounts availed. The customers pushed the volumes, especially in case of non perishable products, as it offered discounts for bulk purchases which the buyers did not mind paying for. This pushed up the footfall and Costco enjoyed the benefit of a continuous increase in its market share. In fact, even the online traffic to its website has been increasing.
Expansion Plans
Costco had planned to open 16 new stores by the end of fiscal year 2012 out of which it is done with 10 new stores till the third quarter. The rest 6 stores are scheduled to be opened in the fourth quarter. The total store count is 602 at present and with the plans in place it is expected to reach 608 by the end of next quarter.
But with all the good news in place, the company faces tough competition from two major players, namely, Target (NYSE: TGT) and Wal-Mart (NYSE: WMT). These players have also been performing well and have reported their quarterly results recently but Costco managed to beat both the competitors in terms of profit growth with Target posting 5% growth and Wal-Mart posting 10% growth in profits over the same period last year.
Final Thoughts
Costco’s lower margin strategy has really worked wonders for the company and it has been continuously making investors happy and delighted. Moreover, it has been growing and also surpassing its close competitors in the race, making it a relatively safer bet in this uncertain economic situation.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
