Costco once again shows why it is the best-run retailer on the planet

A consumer shops in a Costco store in Miami on Sept. 28, 2021.

Joe Raedle | Getty Images

Costco (COST) posted another strong monthly sales result for June — a sign the big box retailer is continuing to outperform and steal market share while many of its peers struggle in a difficult economic environment.

Net sales for the month jumped a solid 20.4% year over year to $22.78 billion, according to data released by Costco Thursday. Even more impressive, however, was the retailer’s same-store sales, which increased 18.1% in June and topped Wall Street estimates of 14.1%.

Same-store sales — also called comparable sales, or comps — is the metric we most focus on because it provides the greatest insight into business trends. Analyzing comparable sales helps us understand if the company can attract more customers and sell them more goods.

As a reminder, Costco’s reporting structure is unlike most public companies. It reports its sales results every month in addition to its regularly scheduled quarterly earnings reports. We value this transparency because it keeps investors informed about how the business is doing.

Another data point we focus on is comparable sales that exclude the impact of changes in gasoline prices and foreign exchange, otherwise known as “core” comps. For June, Costco’s total core comps increased 13%, beating estimates of 11.1%. This result is important because it removes the impact of items that are out of the company’s control. Core comps tell the better story, especially in a year when the prices at the pump have soared higher and the US dollar has strengthened to multiyear highs.

  • By merchandise category, food and sundries core comparable sales were up in the mid-teens, while fresh foods increased in the high single digits.
  • Nonfood categories as a whole increased by just under 10%. This is an important category to watch because of the ongoing consumer spending shift from goods to services. The just under 10% gain compares to a low double digit increase in May, so there was a slight deceleration here. Meanwhile ancillary sales increased in the high 50s, led by gas and food court.

All in, the results show the incredible value Costco is offering its members (especially on gasoline) and reconfirms our thesis that it is the best run retailer in the world.

Potential catalysts

In addition to Costco’s core results, there are two potential events that are on our radar.

First is a membership fee increase. Costco has increased its membership fee three times in the past 15 years, or about every five to six years on average. The most recent price hike happened in June 2017, so we have entered the zone of when something could happen. On the company’s last earnings call in late May, management swiftly played down rumors that a hike was in the immediate future, believing that now was not the right time because the slowing economy and high inflation have hurt the consumer. But we wouldn’t rule out a price hike in the near future and we believe the increase would be met with little resistance from customers considering how high renewal rates are and the value shoppers receive.

The other is a special cash dividend announcement. Every couple of years, Costco’s cash position on its balance sheet swells to a level beyond the needs of the business. As a reward to shareholders, management takes that excess cash and returns it to shareholders via a special cash dividend. Costco has paid one four times in the past eight years, most recently in November 2020. Based on history, we think it is possible Costco will announce a special cash dividend before year-end.

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