Costco: The Resurrection Of The American Consumer?

Costco (NASDAQ: COST) announced very impressive earnings for the quarter ending May 9. Revenue rose from $15.5 billion to $17.4 billion. Net income jumped from $210 million to $306 million. Same-store sales were up 6% in the US for the period and 26% overseas for a total weighted average of 10%Costco’s earnings continue a trend that was found in Walmart Store’s (NYSE: WMT) figures. Americans are still reluctant to shop, even at stores which offer deep discounts. Most of Costco stores are in the US, but its representation outside its home borders is significant. Costco operates 568 warehouses, including 414 in the United States and Puerto Rico, 78 in Canada, 21 in the United Kingdom, seven in Korea, six in Taiwan, nine in Japan, one in Australia and 32 in Mexico. The Canadians and shoppers in Asia must be optimistic.

The market looks for trends in retail sales–which have improved slightly — to see if there is an economic iceberg lurking under the water.  However, a lack of credit, high leverage, and a poor job market continue to rob the industry of traffic. That is not going to charge until the jobless rate–17% by some measures–significantly improves. That may take a year or more.

Consumers with money are going back into malls and super centers. They represent a large part of the population who believe that the recession is over. But, polls from firms such as Gallup show that these shoppers are only a modest part of the overall public. For the rest of the US consumers, the recession has not ended and whatever money they do have will stay in their mattresses.

Douglas A. McIntyre