August 19, 2011
Costco Wholesale Corp. (COST)
Written By Gregory Spear
“Here is the executive summary for Costco Wholesale Corp. (COST): Wal-Mart (WMT), the company’s main competitor, has posted eight consecutive quarters of declining comparable sales growth, whereas COST is growing comparable sales at double digits. Management is generous to its employees, which fosters corporate efficiency and a positive environment for customers, whereas Wal-Mart has been plagued with employee lawsuits. Growth and top flight management make COST a compelling bargain.
“Here are the details: Costco currently operates 584 warehouse shopping sites. The vast majority are located in the U.S., Canada (81) and Mexico (32), but the company also has 22 stores in the U.K. and 21 in Asia. As traditional retailers have struggled in this challenging economic environment, COST has thrived. The company has been able to sustain double-digit sales growth due to an efficient operating model that is ideal in tough times. The no- frills, self-service approach is a win-win for customers and management alike. … Costco is about as recession- proof as one can get for the simple reason that 55% of its sales are from consumables (food, alcohol, candy and tobacco). There are also clothing, furniture, electronics and luxury items for the discretionary shopper. Costco reported a 13% same-store sales increase in May. It was not a fluke. June figures topped May by a full percentage point. Comparable sales growth that month was 12% at U.S. locations and an incredible 18% at international locations. Overall sales in June surged 18% to $8.7 billion. Moreover, the company is not expanding via debt. Costco has less than a 10% debt-to-capital ratio, a spotless credit rating, extensive real estate holdings and $5 billion in cash on hand.
“Bottom line: If you are afraid of equities after the recent volatility, consider Costco on weakness. You will be in good company. Berkshire Hathaway’s Charlie Munger sits on the Costco Board and Berkshire Hathaway is one of the company’s largest shareholders.”
Gregory Spear, The Spear Report, 8/5/11