Costco Wholesale (COST, Financial) is an American membership-only warehouse club that provides a wide selection of merchandise. As of 2014, it is the second largest retailer in the United States, the third largest in the world and the largest membership warehouse club chain in the United States.
Stunning quarter
Costco has been doing well lately. In the company’s second quarter fiscal ’15 functioning results: earnings per share reported at $1.35, up 29% from last year’s $1.05 and net income was fairly impacted by a $57 million or $0.13 a share income tax profit. Company’s second quarter earnings accounted $1.35 earnings per share was $43 million or $0.10 a share. Costco’s membership fees also saw a good increase of 6% over that period of time.
Costco brought in nearly $2.03 billion in operating cash flow during the last two quarters. Capital expenditures absorbed $1.17 billion of that money, parting almost $867 in free cash flow for that period. Regular dividends totalled to only $156 million, or 18% of free cash flow, so Costco has great flexibility to carry on mounting its quarterly dividend based on current cash flow.
Expansion Plans
Costco has relatively few stores compared to other large retailers such as Wal-mart (WMT, Financial). The company has just 474 warehouses in the U.S. and Puerto Rico, leaving it with plenty of scope for enlargement. The company's management told investors in 2013 that it plans to open 150 new stores in the next five years and it appears to be on track to achieve that since it has dealt to open more than 70 stores since then.
Online Growth
Costco has an online presence in four countries: the U.S., Canada, U.K., and Mexico. The company reported a big increase of 23% in online sales last quarter, so chances are that the online segment will be a vibrant growth driver in the years ahead as Costco consolidates its global online presence. Costco finally moved in the Chinese market last year through collaborative efforts with Alibaba's (BABA) Tmall. This looks like a decent idea considering how China has been a hard sell for U.S. retailers.
The company recently changed its credit card co-branding partner from American Express to Visa, so it will bring in more customers when that partnership begins in less than a year. According to recent figures, there were approximately 281 billion outstanding Visa cards, versus 55 billion for American Express.
Business structure
Costco has set up its business to minimize the effect from those higher hourly work costs. For one, it works under a restricted timetable. Distribution centers are open for only 69 hours every week, or approximately 100 less hours than peers.
Costco's business volume is much higher than that of its adversaries, issuing it significantly more income to spread expenses over.Â
Conclusion
Costco may seem overvalued, but the company is recording growth on all fronts. The company still has a lot of room to grow and is taking the right steps to grow its business. The company’s growth plans, along with its superior business structure makes Costco a great buy.
