- Costco is scheduled to release its Q1 fiscal 2014 results
on December 11; according to a recent press release, its
comparable store sales increased by 5% during the quarter.
- Since growing membership base has been driving Costco's
comparable store sales, we will be focusing on new membership
signups, membership renewal rates and rise in number of
- Additionally, we will have an eye on the retailer's online
), the largest warehouse club in the U.S., is scheduled to release
its Q1 fiscal 2014 earnings on December 11. (Fiscal years end with
August.) In a recent press release, the company stated that
its comparable store sales increased by 5% during the quarter.
Sales for the quarter were $26.8 billion, up 6% over the prior
year. The retailer has seen similar growth for the past
several quarters and its steady performance amid a weak retail
environment is quite promising.
Costco's growth is being fueled by an increase in membership
base which is being driven by Volume-discount model, which is all
the more attractive with the prevailing economic weakness. In the
present environment, U.S. buyers have become extremely value
conscious due to slow job growth, increased taxes, higher
healthcare costs and high gasoline prices.
Since Costco has already reported its sales figures for the
quarter, we will focus on its membership base, which is one of its
key growth drivers. Alongside, we will keep an eye on the
retailer's online business since it is an important channel for the
company's long term growth.
Our price estimate for Costco stands at $125
, which is just ahead of the market price.
See our complete analysis for Costco
Membership Base Likely To Grow
Over the last few years, Costco has seen a noticeable increase
in the number of new members. While the retailer added 2.3 million
members in fiscal 2009, more than 4 million customers signed up in
fiscal 2011. The retailer's membership base saw a rise of 3 million
in fiscal 2012 and another 4.2 million joined Costco in fiscal
2013. We believe that the rise in number of new membership signups
in 2013 was driven by the sluggish economic growth, which has made
the U.S. consumers more cost conscious. Apart from new membership
signups, membership renewal rates also remained strong throughout
last year. From 89.7% in Q1 fiscal 2013, Costco's membership
renewal rate in the U.S. increased to 89.8% in the second quarter
and reached 89.9% in the third. The business member renewal
rate increased to 94% at the end of the fourth quarter from 93.9%
at the end of Q3 and renewal rate for Goldstar members rose to
89.1% from 88.9%.
Executive members play an important role in driving Costco's
sales as they represent one-third of Costco's overall customers and
two-third of its revenues. These members pay $110 as
membership fee (as opposed to $55 paid by other members) to get 2%
(maximum of $750) annual rewards on their
purchases. Interestingly, the proportion of executive members
in the overall membership base has been rising historically. Back
in 2009, they accounted for 33% of Costco's total members and the
figure increased to 38% in fiscal 2013. Even in Q2 fiscal
2013, while the total number of members increased by 1%, executive
members grew by 1.4%. In Q4, more than 250,000 customers joined the
warehouse retailer as executive members.
Historically, Costco's comparable store sales growth has mainly
come from an increase in the number of members as average spent per
customer has increased by less than 1% annually. Therefore, growth
in Costco's membership base will be an important factor to watch
out for in the upcoming results.
Online Business Will Be In Focus
Costco's growth in the U.S. depends on its ability to expand as
well as sell more through its existing stores. While the retailer's
comparable store sales have grown steadily over the past few years,
its domestic expansion has been slow. Therefore, we believe that
its online business presents the most viable growth alternative in
the U.S. market. We will closely monitor the direct channel's
performance in Q1 fiscal 2014.
Currently, Costco' online sales account for only 2% of its
overall revenues, suggesting that there is a huge room for
improvement. Given the optimistic outlook for the U.S. online
retail industry, this might not be a difficult task. During the
last two quarters of fiscal 2013, the company's e-commerce revenues
increased by 20% and 15% respectively driven by its e-commerce
strategy, website re-platforming and mobile apps. Costco's
main strategy for its online business is to offer distinct products
on the e-commerce site to keep its customers interested. About
80%-90% of its products offered online do not overlap with the
stores inventory, which enables the retailer to prevent
cannibalization of its store sales to some extent.
How a Company's Products Impact its Stock Price at