Costco continues to be a dominant retail wholesaler based on the
breadth and quality of the merchandises it offers. Having delivered
consistent comps growth, it is well positioned in the warehouse
club industry. Costco's third-quarter fiscal 2014 results also hint
the same, wherein top-line growth rate accelerated to 7.1% from
5.8% in the second quarter, while comparable-store sales increased
4%. The quarterly earnings of $1.07 per share rose 2.9% from the
prior-year period but missed the Zacks Consensus Estimate by a
couple of cents. In the trailing four quarters, it has missed the
Zacks' expectation by an average of 5.5%. Further, aggressive
pricing to counter competition, gain market share and drive traffic
may depress sales and margins. Given the pros and cons embedded in
the stock, we maintain our Neutral recommendation on the stock.
Based in Issaquah Washington, Costco Wholesale Corporation,
(formerly Costco Companies Inc.) sells high volumes of foods, and
general merchandise (including household products and appliances)
at discounted prices through membership warehouses. It is the
largest warehouse club operator in the U.S. The company's
warehouses offer an array of low-priced nationally branded and
select private labeled products in a wide range of merchandise
categories. Costco offers three types of memberships to its
customers: Business, Gold Star (individual), and Executive.
As of July 10, 2014, Costco currently operates 658 warehouses,
465 in the United States and Puerto Rico, 87 in Canada, 33 in
Mexico, 25 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in
Taiwan, 6 in Australia and 1 in Spain. Further, the company plans
to open 5 more warehouses before the end of fiscal 2014.
Costco generates revenue from two sources: 1) Store sales and 2)
Membership fees and other revenue (MFI). Store sales accounted for
98% of fiscal 2013 revenue with MFI represented the remaining
Costco offers myriad varieties of food products as well as a
vast range of household and lifestyle products, stationeries and
appliances. The company also sells gasoline to customers at cheap
prices. The company's products are classified under six broad
merchandise categories, namely, 1) Sundries (including candy, snack
foods, tobacco, alcoholic and nonalcoholic beverages), 2) Hardlines
(including major appliances, electronics, health and beauty aids,
hardware, office supplies), 3) Food (including dry and
institutionally packaged foods), 4) Softlines (including apparel,
domestics, jewelry, housewares, media, home furnishings, cameras),
5) Fresh Food (including meat, bakery, deli and produce) and 6)
Ancillary and Other (including gas stations, pharmacy, food court,
optical, one-hour photo, hearing aid and travel).
Costco Wholesale Corporation (COST): Read the Full
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