Costco: Early Sign -- or Exception?

Posted by: Ben Steverman on October 7, 2009

Costco Wholesale Corp. (COST) posted impressive results this morning. My question is what sales and profits at the warehouse retailer say about retail more broadly.

Costco posted earnings of 85 cents last quarter, beating Wall Street’s estimates of 7 cents.

“The company also reported sales and traffic growth for September, both of which accelerated from August,” writes Credit Suisse (CS) analyst Michael Exstein.

Traffic was up 4.5% from a year ago, while worldwide same-store sales rose 1%. (Though they were down 1% for the U.S. alone.)

On the news, Costco shares rose 1.85% on Oct. 7.

Investors are still skeptical about the outlook for consumer spending, and in that environment, Costco is beating (low) expectations. But can the rest of retail do the same?

Michael Yoshikami, president and chief investment strategist at YCMNET Advisors, thinks not. In an interview yesterday, he said Costco typified the kind of company that could perform well in this economic environment. He said:

[Costco] is a company that is going to do well in a slow-growth economy. [Discount retailers] like Costco, Wal-Mart (WMT) and Amazon (AMZN): These are companies that are going to gain share when consumers have less money to spend.

In an era of almost 10% unemployment and high consumer and business debt, Wal-Mart wins and Nordstrom (JWN) presumably loses. This is despite the fact that Wal-Mart shares are down 12% this year, while Nordstrom’s stock is up 143%. (Nordstrom was making up for a terrible 2007 and 2008 after all.)

But how long does this gloomy environment last? If the economy keeps improving, eventually that will benefit a broad range of retailers. The question is how long and how fast that general improvement can continue. And, as far as I can tell, economists are having a very tough time agreeing on an answer. What do you think?

Reader Comments

Joe Naujokas

October 7, 2009 8:09 PM

Costco is basically cash only.

I think this data is more indicative of the reality that "Cash is King," not necessarily that retail in general is reviving. It will be interesting to compare Costco to WalMart.

Jim

October 7, 2009 10:20 PM

Costco will probably do well in the recovery, too. Unlike WalMart and Sam's Club, Costco has maintained a focus on customer service by doing such things as double manning cash registers at all times, with one person to assist in unloading carts and boxing checked out purchases and returning them to the customer's cart. Our local Sam's, on the other hand, has reduced open cash registers by 50%, and Sam's as a chain decided long ago that people who wanted the convenience of having their purchases loaded in boxes for transport needed to do the loading themselves. I'm sure people value Costco's more customer friendly approach. Now, if they'd just be more consistent about the products they stock.......particularly in grocery lines, it seems that whenever something really good appears in a store, it sells out quickly and is never seen again.

JJW

October 8, 2009 3:36 PM

"it seems that whenever something really good appears in a store, it sells out quickly and is never seen again."

That is part of their strategy. The CEO has said as much. Costco gets one-off special deals sometimes and the unpredictablity keeps people coming in to see if they can catch a real deal.

Lela Boykin

October 16, 2009 8:17 PM

Why is COSTCO selling an AFrican American doll with a headband that has Lil Monkey on it?

Mitch

November 16, 2009 2:59 AM

They do not sell those dolls . They pulled them quickly.

Mitch

November 16, 2009 3:00 AM

They do not sell those dolls . They pulled them quickly.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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