Costco Revenue And The Death Of Margins

Costco (NASDAQ: COST) released May figures. They looked good at first, but a close examination shows that the big box retail chain’s revenue barely kept up with same-store sales growth last month.

Costco began to consolidate its Mexico revenue this year, and it did not do so in the same period in 2010.

Costco revenue rose 14% without Mexico added in. With those operations included sales were up 17% to $7.14 billion. Same-store sales for the month were higher by 13%. Somewhere in that math is the story of very modest improvement in sales per store.

Retail results for May and the balance of the summer will probably tell a similar story. Same-store sales will move higher, although a slowing economy could change that soon. Revenue will move up less or about equal with store revenue improvement. Those statistics mean that margins are getting worse or at least not getting better.

Large retailers are likely to have dropped prices to increase store traffic. The only offset to lower prices is the number of layoffs retailers have done since the recession began.

It will not take more than another month or two to determine if there is a real recovery in retail sales. Discounts help traffic but that is about all they do.

Douglas A. McIntyre