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Is Costco stock a COVID-19 winner?

In this week’s stock selection piece, I take a look at the often misunderstood bulk retailing business Costco Wholesale Corporation (NASDAQ: COST).

Costco a beneficiary of bulk buying

Similar to Woolworths (ASX: WOW) and Coles Group (ASX: COL) Costco has performed reasonably well throughout COVID-19 shutdowns, benefitting from hoarding. Its business model of offering incredibly low prices for bulk purchases was the perfect fit for consumers.

Costco sells all kinds of food, automotive supplies, toys, hardware, sporting goods, jewellery, electronics, apparel, health, and beauty aids, as well as other goods. The company has a unique business model in that it is structured as a club, selling memberships for around USD$60 per year. These memberships account for some 70% of earnings (EBIT) and are required for anyone wishing to shop either in person or online. The Costco group has over 780 stores across the globe, but with most revenue sourced from the US (73%) and Canada (14%).

After launching in 1998, Costco has slowly built up a store network of 12 in Australia, and I have little doubt everyone knows someone who is obsessed with their bulk buying, in-house product range. Such has been the company’s success in expanding globally that the Costco share price has averaged an 18% annual return over the last five years.

Ongoing growth

Costco offered up strong results despite COVID-19, reporting recently that its US comparable store sales was up 8%, and its International division reported results up 12%. Costco also sells petrol at 75% of their big-box warehouses. Some 40% of the company’s sales continued to be sourced from food and general items, with 18% from fuel, fresh food from 13%, and hard lines or hard products at 16%.

Indeed, Costco’s results have been impressive, with a constant increase in revenue from $129 billion in 2017 to $141 billion in 2018 and $152 billion in 2019. Investors have benefitted from faster global expansion and some 200 of its over 800 stores are now located offshore. Interestingly, only 4% of global sales have traditionally been online. This is, however, beginning to change.

According to Morningstar, Costco’s digital sales rose 66% on an adjusted basis and nearly 100% in March. The company is benefiting from considerable protections from digital rivals that should also act to limit its long-term e-commerce potential. Its Australian e-commerce offering is also up 30% for the year.

It’s all about ROIC

Costco has consistently delivered strong returns to shareholders, with Return on Invested Capital or ROIC averaging in the teens for most of the last decade and currently sit around 17%. This is similar but slightly higher than Woolworths’ result of around 14%.

COST is by no means a cheap stock as it trades on a P/E of around 30 times, which is not dissimilar to Woolworths shares at 27x. However, Costco’s model is a more scalable business model.

As with all grocery retailers, management is investing heavily into digitisation and their low prices along with membership fees should entrench them in the post-COVID-19 economy.  The membership base is almost cult-like and offers competitive advantages that will be needed as they seek global domination amid an uncertain economic environment.

This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

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The Golden Rules of Investing

We might be experts in retirement, but with combined financial advice experience of 35+ years, we’ve nearly seen it all. 

In mid-2023, our senior team at Wattle Partners Financial Planning put the finishing touches on a brand-new report “The Golden Rules of Investing“.

In this free report, we outline the key principles that determine all of the portfolio construction and investment decisions of Wattle Partners. Collated over decades, this paper should be seen as a work-in-progress, constantly under review in light of the ever-evolving nature of markets. 

You’ll find the free report on my Author page. Simply click the button below to view the Golden Rules.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.


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Wattle Partners is a financial advice firm, servicing clients around Australia, specialising in retirement planning (pre and post retirement). 

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