Costco Wholesale Corporation (COST): This Quiet Giant Is Making Some Noise

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Costco Wholesale Corporation (NASDAQ:COST) is America’s No. 3 retailer, even though it’s technically a wholesaler.

Costco Wholesale Corporation (COST): This Quiet Giant Is Making Some Noise

And it’s big.

Its food court sells 100 million hot dog and soda combinations a year, according to The Motley Fool. And the combo costs $1.50.

That has always been the attraction to this truly big box retailer: Nothing is small here, but relatively speaking, the prices are as tempting as one of its hot dog combos.

But the interesting fact that goes unnoticed across its 698 store empire that includes the U.S., Canada, Mexico, the U.K., Japan, Korea, Taiwan, Australia and Spain, is that it isn’t looking for same store sales numbers to drive its bottom line like Wal-Mart Stores, Inc. (NYSE:WMT) or Target Corporation (NYSE:TGT).

Why COST Is a Unique Retailer

Most of its revenues come from memberships. And that makes Costco stock unique in this space.

That’s why, according to Costco’s chief wine buyer Annette Alvarez-Peters, COST shoots for about a 14% profit margin on its wine, as well as everything else it sells.

It sold about $3.7 billion in alcohol last year. It’s also one of the world’s largest importers of high-end French wine. And it has its own line of wines that come from some of the top vineyards in the world, but because they sport a Kirkland label, they sell for around $10 a bottle.

The point is, COST knows its customers and it knows what its secret is for making money. Keep members happy and they will keep shopping. It has a smaller selection of products than WMT or TGT, but it’s about value. You may not have five different oatmeal options to choose from, but you have one or two that are quality options.

That traffic pays to keep the lights on and the shelves stocked so that membership money is gravy. It may very well be the model that Amazon.com, Inc. (NASDAQ:AMZN) adopted for its Prime membership model.

In late June, it did upset a large part of its base when it switched from only accepting American Express Company (NYSE:AXP) credit cards and having a COST-branded Amex, to Visa, through Citigroup Inc (NYSE:C). So now, you can pay by cash, check or a Visa card but nothing else. And the Costco Visa comes with special discounts and other advantages.

The problem arose when Citi was late getting cards out to 11 million cardholders and Citi started to get calls — about 1.5 million of them in two days — and wasn’t equipped to handle the volume. It was ugly for a couple days, but now things are subsiding.

This wasn’t as much a COST problem as it was a C problem, but it didn’t make COST look too good.

But the deal is going to work very well for Costco stock in the intermediate-term. Amex was charging $180 million in fees on the cards, and according to The Country Caller, it will save more than half that fee with Visa cards.

That savings hasn’t hit the quarterly numbers yet, since the switch just took place a couple weeks ago. Traffic is also increasing in its stores at a faster clip than its competitors, which means happy members, or better yet, new members.

There are plenty of reasons to like this BFG of a store and its stock is no less appealing.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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