Great News for Costco Investors
Key Points
The market has been worrying about inflation as well as slowing membership metrics.
Costco continues to report strong sales and profit growth.
It's benefiting from more people using its gas stations as oil prices rise.
Costco Wholesale (NASDAQ: COST) has always been a reliable market beater ... until this year. Costco stock is up a mere 3.5% over the past year, while the S&P 500 is up 15.6%.
Oddly enough, all of that annual gain for Costco stock happened over the past week thanks to some good news. Is this the start of a comeback?
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Stability and consistency
Costco is known for its low prices and unique, warehouse shopping experience. Its membership model, which includes an annual membership fee for the privilege of shopping in its stores, generates loyalty and high volume. Costco marks up its products just enough to cover associated costs, and it makes most of its profits from the fees.
That model has worked beautifully for the retail giant, but that doesn't mean it's always smooth sailing. The membership model doesn't attract mass consumers who can't afford the annual fee, even in exchange for the lower prices. While sales and profits have continued to increase at a strong pace, the market has been concerned about slowing growth in membership metrics and the company's ability to sustain growth as inflation persists.
However, investors got great news when Costco reported September results this week. Costco is one of the few public companies that reports some monthly data, and in September, revenue growth accelerated to 13% year over year. That was driven by an 11.4% increase in comparable sales (comps). Even more importantly, U.S. comps, which had been slowing, were up 12.5%.
Instead of slowing it down, inflation seems to be driving more of Costco's members to do their shopping there. A good chunk of that is coming from its gas stations as oil prices rise, and Costco is leaning into that by opening more gas stations. However, without gas, comps were up a solid 7.6%, indicating that the model is still working just fine.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.