Costco Is America’s Greatest Retailer

As investors tore apart the stocks of retailers like Best Buy Co. Inc. (NYSE: BBY | BBY Price Prediction) and Macy’s Inc. (NYSE: M) as they announced earnings, Costco Wholesale Corp. (NASDAQ: COST) earnings were strong. It is another example of the power of the big-box retailer’s business model.

Costco’s position as a favorite of Wall Street shows up in its stock price. It is up 10% this year, outperforming the S&P 500, which has remained flat over the same period. Macy’s is down 29%, and Best Buy is off 23%. Each posted disappointing numbers and comments that raised concerns among investors about their performance for the remainder of the year.

Costco reported that revenue rose 8% in the most recent quarter to $62 billion. Per-share earnings rose from $3.79 last year to $4.29. Tariffs did not affect its numbers, and management remained calm about the future. It stated that shoppers would favor its bulk sales discounts.

CEO Ron Vachris said about Costco’s plans, “It has rerouted goods from countries with higher tariffs to non-U.S. markets. And it sourced more items for its private brand, Kirkland Signature, in the countries or regions where the items are sold.”

The Secret Sauce

Costco’s secret sauce is its membership fees. Although they are small compared to retail revenue, they do not carry a cost of goods sold, which brings almost all of it to the bottom line. In the most recent quarter, “Membership fees” brought in $1.24 billion, up from $1.12 billion in the same period a year ago.

People cannot set foot in a Costco store without a membership. The standard “Gold Card Membership” costs $65 annually. The “Executive Card Membership” costs $130 annually. The higher price includes an annual 2% cash-back feature. Costco has 130 million members and operates 905 locations, 624 of which are in the United States.

Costco also offers a private label brand, which allows shoppers to save money on thousands of items. Launched in 1995, Costco claims that the Kirkland brand is more attractive than most premium branded products it sells from other companies. The Kirkland brand encompasses a wide range of products, including gasoline, groceries, clothing, and cleaning supplies.

Costco’s business model and success so far this year means its stock should be better than those of other national retailers.

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