Costco once again shows why it’s the best-run retailer on the planet

A consumer shops at a Costco store in Miami on September 28, 2021.

Joe Raedle | Getty Images

Costco (COST) posted another strong monthly sales result for June – a sign that the big-box retailer continues to outperform and steal market share as many of its peers struggle in a tough economic environment.

Net sales for the month jumped 20.4% year over year to $22.78 billion, according to data released by Costco on Thursday. However, the retailer’s same-store sales were even more impressive, rising 18.1% in June and beating Wall Street estimates of 14.1%.

Comparable store sales – also known as comparable sales or comps – is the metric we focus on the most because it provides the best insight into business trends. Comparable sales analysis helps us understand if the business can attract more customers and sell more goods to them.

As a reminder, Costco’s reporting structure is different from most public companies. It publishes its sales results every month in addition to its regular quarterly earnings reports. We appreciate this transparency because it keeps investors informed of the progress of the company.

Another data point we focus on is comparable sales which excludes the impact of changes in gasoline prices and currency exchange rates, also known as “basic” components. For June, Costco’s total base comps rose 13%, beating estimates of 11.1%. This result is important because it removes the impact of elements that are beyond the company’s control. Basic comps tell the best story, especially in a year when pump prices soared and the US dollar strengthened to multi-year highs.

  • By commodity category, same-store sales of food and sundries grew in the mid-teens, while fresh food grew in the single digits.
  • Non-food categories as a whole grew by just under 10%. This is an important category to watch given the continued shift in consumer spending from goods to services. The gain of just under 10% compares to a low double-digit increase in May, so there was a slight deceleration here. Meanwhile, ancillary sales increased in the 1950s, led by gas and the food court.

Overall, the results show the incredible value Costco offers its members (especially on gas) and confirm our thesis that it is the best-run retailer in the world.

Potential catalysts

In addition to Costco’s top results, there are two potential events that are on our radar.

First, an increase in membership fees. Costco has increased its membership fees three times in the past 15 years, or about every five to six years on average. The most recent price rise was in June 2017, so we’ve entered the zone where something could happen. During the company’s latest earnings call in late May, management was quick to play down speculation that a hike was imminent, believing now was not the right time as the slowing economy and high inflation hurt the market. consumer. But we are not ruling out a price increase in the near future and believe the increase would meet little resistance from customers given the high renewal rate and the value buyers are receiving.

The other is a special cash dividend announcement. Every two years, Costco’s cash position on its balance sheet swells to a level that exceeds the company’s needs. As a reward for shareholders, management takes this excess cash and returns it to shareholders via a special cash dividend. Costco has paid one four times in the last eight years, most recently in November 2020. Based on history, we think it’s possible Costco will announce a special cash dividend before the end of the year. year.

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