COST stock has declined over 9% so far in 2021. It’s down 12% from late November highs.
But for a name like Costco, a 12% move is rather significant. It’s not just significant – it’s a buying opportunity.
Costco did take a modest hit during the pandemic, in part due to store closures. For instance, in April same-store sales excluding gasoline and foreign currency effects were flat. That’s a huge disappointment by Costco’s high standards.
But as stores reopened, Costco immediately got back on track. In June, for instance, same-store sales rose 14% on the same basis. For the third quarter (ending May 10), Costco drove 4.8% same-store growth. In Q4, the figure accelerated to better than 11%. Growth in December and January averaged better than 8%.
There’s not much in the numbers to suggest anything has changed. The pandemic caused a bit of volatility, yes, but Costco still grew adjusted same-store sales 9% in FY2020 and 6% the year before. As far as e-commerce goes, the pandemic has given Costco a chance to build out its own business. E-commerce revenue grew 50% in FY2020 and climbed another 18% through the first 22 weeks of FY2021.
Remember that Costco’s profit comes largely from membership fees. In FY2020, for instance, membership fees were about 65% of operating profit. which was actually down from 71% the year before. Essentially, Costco turns about 1% of its sales into operating profit, then tacks on membership revenue.
That membership revenue is benefiting from customers acquired last year. Most are going to stick around for the long haul. The boost here isn’t like that of, say, a grocery store, whose sales will return to pre-pandemic levels as normalcy returns.
Remember also that membership revenue is part of why COST stock is expensive – and has been for years. Yes, this is a fantastically well-run company. But the model’s reliance on membership fees creates faster growth as well.
An extra dollar in membership fees drops to the operating profit line at huge margins. And so Costco can grow earnings faster than most any other brick-and-mortar retailer.
Submitted March 02, 2021 at 12:48AM by DangerStranger138 https://ift.tt/37X6qd2
