Costco Wholesale Corporation (NASDAQ: COST) has a unique business model characterized by high-volume sales and low prices, which enabled the company to constantly expand the store network and grow its private label portfolio. COST is an all-weather stock that has successfully overcome market headwinds in the past while creating decent shareholder value.
Shares of the membership-only warehouse club rose above $600 a few months ago and set a new record, but changed course later and plunged to an eight-month low. However, it shrugged off the weakness quickly and has made impressive gains since then. While Costco has long been an investors’ favorite, the stock’s resilience and reasonable price make it more attractive.
Still, the valuation seems to be on the higher side and that could be a concern for those looking to buy it cheaper. It can be seen as a relatively safe bet at a time when investor sentiment is hit by risks related to the Russia-Ukraine war, COVID-related supply chain issues, and high inflation.
Moreover, the company’s core business is unlikely to get affected by the macroeconomic headwinds, which is evidenced by the steady membership growth despite the general slowdown. The ability to buy and sell merchandise at comparatively cheaper prices across several high-volume categories gives it an edge over both traditional retailers and online marketplaces.
After constantly expanding market share, the management is currently planning to add more units during the remainder of the year. It shows that the leadership is confident about generating strong sales despite the deepening cost pressure – due to higher commodity prices, wages, and transportation costs — and supply chain disruptions. So far, the company has been successful in taming the inflation-indued drag on consumer sentiment by striking the right balance in passing on the higher costs.
Recent data shows that in the past few quarters, the company posted better earnings than widely expected and generated good sales. In the April quarter, for which results were published a few weeks ago, comparable store sales rose an impressive 14.9%, almost matching the quarterly growth recorded since early last year. Third-quarter revenues climbed 16% to $53 billion, which translated into an 11% increase in earnings per share to $3.04. Costco is preparing to publish fourth-quarter results on September 22, after the regular trading hours.
From Costco’s Q3 2022 earnings call:
“We’re not seeing a lot of — we’re not seeing trade down really. We’re seeing a little bit of shift in where people are spending their money. Last year, there was more stuff for the home in that. And this year, it’s more sales in tickets and restaurants and travel and tires and gas and things of that nature. But we’re still holding our own in areas like apparel and furniture and jewelry, TVs, and appliances. All those departments are showing good decent sales growth on top of pretty good numbers a year ago.”
Having recovered from the post-earnings fall, Costco’s stock is currently trading close to the value at which it entered the year. It ended the last trading session lower.
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