ii view: another stellar quarter for Costco

Shares in this membership retailer have gained by 229% over the last five years since the Covid lows, outpacing a 110% gain for Amazon. Buy, sell or hold?

7th March 2025 11:37

Keith Bowman from interactive investor

Second-quarter results to 16 February

Total revenues up 9% to $63.7 billion
Comparable sales up 6.8% year over year
Adjusted earnings up 2.6% to $4.02 per share
Dividend payment unchanged at $1.16 per share

ii round-up:

Members-only warehouse retailer Costco Wholesale Corp (NASDAQ:COST) has detailed progress in sales and profits aided by buoyant e-commerce sales.

Second-quarter sales to mid-February climbed 9% to $63.7 billion, driving adjusted earnings up 2.6% to $4.02 per share. Sales marginally missed Wall Street hopes despite online growth of 22%, the highest in over three years. Earnings exceeded forecasts of $3.92 per share.

Shares in the S&P 500 retailer fell 2% in after-hours US trading having come into these latest results up by close to a third over the last year. That’s comfortably ahead of gains of around 12% for both online rival Amazon.com Inc (NASDAQ:AMZN) and the S&P 500 index itself over that time.

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Costco operates 897 warehouses globally including 617 in the USA, 109 in Canada, 41 in Mexico, 36 in Japan and 29 across the UK.

Website traffic for its eight websites around the world rose 13% year over year with average order values climbing 10% and Costco Logistics Deliveries increasing 19%. Popular online customer buying categories included sporting goods, housewares and toys.

Like-for-like or comparable store sales for the quarter of 6.8% was up from 5.2% in the first quarter. Revenue from membership fees increased by 7.4% to $1.19 billion, with Costco’s membership base climbing to 140.6 million cardholders at a renewal rate of 90.5%.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging a target price of $1,150 per share. A third-quarter trading update is scheduled for 29 May.

ii view:

Started in 1983, Costco today employs over 330,000 people. The retailer is only open to fee-paying members, with three types of membership available. Along with known brand names, customers can also purchase its own Kirkland Signature products designed to be of equal or better quality than national brands. The US generated most sales during 2024 at 72%, with Canada at 13.7% and other combined international businesses with the balance of almost 14%.

For investors, trade tariffs applied on goods imported from overseas such as electrical items could reduce demand. Costs for businesses generally remain elevated. A forecast price/earnings (PE) ratio above the three- and 10--year averages may suggest the shares are not obviously cheap, while the group’s e-commence operations lack the scale of rival Amazon.

More favourably, diversity of revenue streams includes both membership fees and product sales, with the group’s geographical footprint also extensive. E-commerce sales are growing, scope for overseas expansion persists, particularly in China with just seven stores, while Costco’s membership model enables ongoing investment in competitive product pricing.

For now, and despite ongoing risk, this value orientated retailer looks to still justify its place in many diversified investor portfolios.

Positives:

Product diversity
Value orientated

Negatives:

Intense competition
Subject to currency moves

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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