Costco (COST, Financial) operates membership warehouses. It offers products in a variety of merchandise categories. It offers appliances, electronics, automobile supplies and other consumer products. Costco also operates gas stations, pharmacies, food courts, travel businesses and hearing-aid centers. As of March 6, 2014, Costco operated 649 warehouses. This includes 462 warehouses in the U.S. The company also sells its products through online channels. It was founded in 1976 and is based in Issaquah, Wash.
Financials
Costco also provides business and gold star membership services. In the third quarter, total sales were up 7% to $25.2 billion. This compares to $23.5 billion for the same period in 2013. The company’s operating income came in at $734 million, higher by $12 million from last year’s $722 million. Costco’s renewal rates have continued to tick up. Its business members at the end of the third quarter were 94.4% from 94.3% renewal rates three months earlier. The company, however, expects its capital expenses for the entire year to come in at about $2.2 billion compared to last year’s expenditure of $2.1 billion. Its quarterly sales were also negatively impacted by gas price deflation.
Initiatives
In the first half of fiscal 2014, the company closed its Acapulco location due to damages caused by a hurricane. It then opened many new locations. In the third quarter, Costco opened two new locations in Louisiana and Texas.
Costco has also re-platformed and added mobile apps to its advertising effort. The company combined some of its e-commerce merchandising buying efforts with some of its line efforts. It added a few categories like apparel, some limited apparel items, and some limited beauty products. To improve the timing of shipments, it started to ship out of more than one depot.
Competition
Costco faces competition from Target Corporation (TGT, Financial), Wal-Mart Stores (WMT, Financial) and the privately held BJ’s Wholesale Club. Compared to its rivals, Costco offers quality merchandise, good prices and occasional surprises. It continues to enjoy strong renewal sales and is committed to a policy of international expansion.
Wings Across the World
The company’s international stores in seven countries have proven that its formula works just as well with consumers outside the U.S. Costco operates 87 warehouses in Canada, 33 in Mexico, 25 in the UK, 18 in Japan, 10 in Taiwan, nine in Korea and five in Australia.
A Glance at Asia
Costco opened a location each in Korea and Japan in the last quarter. It plans to add more stores to its operations in Taiwan. In addition, Costco plans to open online stores in China, but the company is keen to avoid the huge costs and high risk elements that made some of its competitors to back out of the Chinese market.
Europe
Costco has opened its first store in Spain. It expects to open another store in the UK through the end of fiscal 2014 on Aug. 31. Costco combines its UK operations with the management of an online store.
On a Concluding Note
Costco began its recent repurchasing activities on March 7. It has expended $183.6 million since the program began. To ensure a competitive advantage over its rivals, it is innovating and investing in value-added activities. This could bring even more value to shareholders. Costco has enough room for its international expansion. It will provide a pocketful returns to investors in the near future.
