Costco Thrives by Mastering Traditional Retailing. Now It’s Challenging Amazon.
Illustration by Elias Stein
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Costco Wholesale
is challenging
Amazon.com
by keeping things simple: limited selection, low prices, good execution. With just 7% of its sales online, it’s the anti-Amazon.
Costco shares have risen 3% so far in April to $590. The stock is up 63% in the past 12 months, while Amazon is off 9%. Costco trades for 46 times projected earnings of $13 a share in its fiscal year ending in August and for 42 times in 2023. That’s the highest price/earnings ratio for a major traditional retailer and just under Amazon’s 2023 P/E of 43.
Amazon, of course, is part retailer, part tech company. Amazon’s effective retail P/E is less than 43 due to the high value of Amazon Web Services, its cloud operation. Costco beats Amazon on earnings before interest, taxes, depreciation, and amortization, or Ebitda—trading for 22 times projected 2023 Ebitda, while Amazon fetches 16 times. Its market value is $260 billion, a fraction of Amazon’s $1.6 trillion.
Costco earns the bulk of its profits from membership fees—the base fee is $60 a year—with renewal rates around 90%. Inflation adds to its appeal. Costco generally won’t mark up prices more than 15%, which it can do by keeping expenses low, although it pays employees better than most rivals. Membership is growing, rising 7% in its latest fiscal year to 61.7 million. Earnings have grown at a 16% annual clip over the past five years, according to FactSet.
Costco even excels at limiting shoplifting—a big industry problem. Costco’s “shrink” ranges from 0.1% to 0.15% a year, while many retailers are at about 3%-plus. The reasons: Its stores have one entrance, employees check receipts, products are bulky, and customers are members.
Next Week
Monday 4/18
J.B. Hunt Transport Services
,
and
Synchrony Financial
report quarterly results.
The National Association of Home Builders releases its Housing Market Index for April. Consensus estimate is for a 77 reading, two points lower than the March figure. The index has declined for three consecutive months as surging mortgage rates have made home builders less optimistic about the housing sector in general.
Tuesday 4/19
Netflix
reports first-quarter results after the market close. Shares of the streaming pioneer plunged 21.8% in late January after the company said it expected to add only 2.5 million subscribers for the first quarter.
Hasbro
,
IBM
,
Prologis
,
Signature Bank, Travelers, and
Truist Financial
announce earnings.
The Census Bureau reports new residential construction statistics for March. Economists project a seasonally adjusted annual rate of 1.76 million privately owned housing starts, roughly even with the February figure, which was the highest since June 2006.
Wednesday 4/20
Abbott Laboratories
,
Anthem,
CSX
,
Equifax
,
Kinder Morgan
,
Lam Research, Nasdaq, Procter & Gamble, and
Tesla
release quarterly results.
The National Association of Realtors reports existing-home sales for March. Expectations are for a seasonally adjusted annual rate of 5.77 million homes sold. If estimates prove correct, it would be the lowest total since June 2020.
Thursday 4/21
AT&T
,
Blackstone, Danaher, Dow,
Nucor
,
Philip Morris International
,
Snap,
SVB Financial Group
,
Union Pacific, and
United Airlines Holdings
hold conference calls to discuss earnings.
The Conference Board releases its Leading Economic Index for March. Consensus estimate is for a 0.3% month-over-month increase to a 120.3 reading. The Conference Board is currently projecting 3% gross-domestic-product growth for this year.
Friday 4/22
Kimberly-Clark
,
Newmont,
Regions Financial
,
SAP,
Schlumberger
,
and
Verizon Communications
report quarterly results.
IHS Markit releases both its Manufacturing and Services Purchasing Managers’ Indexes for April. Expectations are for a 58.2 reading for the Manufacturing PMI and a 58.3 reading for the Services PMI. Both would be roughly even with March’s levels.
Write to Andrew Bary at andrew.bary@barrons.com
