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 first-quarter fiscal 2014 results also hint
the same, wherein top-line growth rate accelerated to 5.5% from
0.8% in fourth-quarter fiscal 2013, while comparable-store sales
increased 3%. However, earnings of $0.96 per share came a penny
ahead of the prior-year quarter and missed the Zacks Consensus
Estimate. In the trailing four quarters, it has missed the Zacks'
expectation by an average of 1.8%. 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 January 9, 2013, Costco operates 648 warehouses,
comprising 461 warehouses in the United States and Puerto Rico, 87
in Canada, 33 in Mexico, 25 in the United Kingdom, 18 in Japan, 10
in Taiwan, 9 in Korea, and 5 in Australia.
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
COSTCO WHOLE CP (COST): Free Stock Analysis
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