QUOTE AND NEWS
Motley Fool  53 min ago  Comment 
Costco just posted its strongest same-store sales since December 2012. Here's what investors need to know.
Motley Fool  2 hrs ago  Comment 
Costco stock has surged more than 10% since early April, but it's still a good buy for long-term investors.
Motley Fool  Sep 5  Comment 
Due to its convenient business model and unique corporate culture, Costco is outperforming Wal-Mart by a considerable margin. The way things are going, the company looks well positioned to continue delivering superior results over time
TheStreet.com  Sep 5  Comment 
NEW YORK (TheStreet) -- Shares ofaCostcoa were unchanged in pre-market trading Friday afteraBarclaysa increased its price target on the stock to $122 and increased its estimates. The firm said the company is seeing higher sales and maintained...
Market Intelligence Center  Sep 5  Comment 
MarketIntelligenceCenter.com's patented algorithms have identified an attractive covered-call trade on Costco Wholesale Corp (COST). Look at the Jan. '15 $125.00 covered call for a net debit in the $121.35 area. This trade has a duration of 134...
Forbes  Sep 4  Comment 
With the back-to-school season winding down, it’s about that time of year for shoppers to look forward to the winter holidays. And while it may seem premature to preempt Halloween with the holiday discussion, last year one in five began their...
Wall Street Journal  Sep 4  Comment 
Costco and L Brands reported stronger-than-expected sales in August, though the month was dominated by deals and discounts as retailers tried to boost back-to-school sales.
TheStreet.com  Sep 4  Comment 
NEW YORK (TheStreet) -- Shares of Costcoa were up 1.52% to $123.20 in pre-market trading Thursday afteraDeutschea increased its price target on the stock to $128 and increased its estimates. The firm maintained its "buy" rating and saidathe...
Market Intelligence Center  Sep 4  Comment 
Thursday headlines include: More information about the prevalence of hacking at Home Depot, great sales figures from Costco, more information coming out about hacking at banks including JP Morgan, Tesla reportedly picking Nevada for its...
SeekingAlpha  Sep 4  Comment 
By Josh Arnold: Shares of Costco (NASDAQ:COST) have been a huge, steady winner for investors over the past few years. After consolidating in the $75 area three years ago, shares made a steady increase that was seemingly unstoppable into the $125...




 

Costco (NASDAQ: COST) is the largest warehouse club retailer and the second largest general retailer in the United States. Costco sells food and general merchandise, including appliances and other household goods, in bulk and at heavily discounted prices. Costco's two main competitors are Sam's Club and BJ's Wholesale Club (BJ), both of which have similar business strategies to Costco.

Costco's business strategy providing items in bulk and at low prices help the retailer maintain positive growth during slow economic times. Price conscious consumers gravitate toward discount retailers like Costco, hoping to get the most out of their money. As a result, Costco's bottom line has fared well since the economic slowdown. Costco's biggest concern is over expansion and cannibalization of existing store locations. As a result, the company has announced it will slow its domestic expansion plans. Costco will instead look to international markets for future growth.

Company Overview

Business Segments

Costco's merchandise categories include:

  • Sundries (23% of Net Sales): Sundries is Costco's largest segment by revenue and includes the sales of candy, snack foods, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies.
  • Food (21% of Net Sales): This segment is responsible for the sale of dry and institutionally packaged foods (oatmeal, rice, cereal, etc.) The food segment is Costco's second largest segment.
  • Softlines (10% of Net Sales): Softlines is Costco's smallest business segment and is responsible for the sale of apparel, domestics, jewelry, housewares, media, home furnishings, cameras, and small appliances (toasters, microwaves).
  • Fresh Food (12% of Net Sales): The fresh food segment is responsible for the sale of meat, bakery goods, deli and produce.
  • Ancillary and Other (15% of Net Sales): The ancillary and other business segment is in charge of the company's gas stations, pharmacy, food court, optical, one-hour photo, hearing aid, and travel products.

Business Growth

FY 2010 (ended August 30, 2010)[1]

  • Net sales increased 9.1% to $76.2 billion.
  • Net income increased 20% to $1.3 billion.

Trends and Forces

Mall Strategy Aids Costco's Urban Expansion

The sluggish economy and weak housing market caused many companies, especially department stores, to vacate space in shopping malls. As a result, Costco has stepped in and has been buying up these empty spaces previously occupied by department stores. Although this mall strategy is in contrast to Costco's current strategy of big box retailing in stand-alone stores, Costco stands to benefit from the switch. First, it allows Costco to expand at a quicker rate because the company won't have to worry about setting up infrastructure or have to deal with community opposition in building warehouse stores. Second, it brings Costco's stores to more generally populated areas and to high-traffic areas like malls. So instead of having to drive a long distance to a strip-mall to get Costco's low prices, consumers will now have easier access to the low prices while still being able to shop at other stores under the safe roof. Costco's bottom line stands to benefit from higher traffic and more sales.

Consumers Looking For More Than Just Bulk

Consumers prefer not to have to travel to different places in order to shop. One of the biggest reasons why giant retailers like Wal-Mart (WMT) are successful is because their stores are more than just a place for people to buy food -- these stores provide ancillary services like places to eat or get a hair cut. Many of Costco's stores already provide ancillary services like in-store food service, one-hour photo centers, optical dispensing centers, pharmacies, gas stations, hearing-aid centers, printing/copy centers and car washes. Costco uses these services to attract customers into their stores for more than just buying bulk items and improving on these services will help to increase traffic flow into Costco stores and will help generate sales.

Stands back from the keyboard in amaezemnt! Thanks!

References

  1. COST 2010 10-K, pg. 19
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