This recession-resistant stock just pulled it out of the park
One of the big fears of investors right now is that companies that have performed particularly well during the most intense stages of the COVID-19 crisis will not be able to match their pandemic-fueled sales as a result. of the pandemic. Those favorable winds pushed these outperforming stocks to extreme highs last year after the March 2020 crash. Now they’re giving back some of those gains.
Wholesale Costco (NASDAQ: COT) posted above-average sales growth throughout 2020. But even as the vaccination rate in the United States increases, the warehouse club retailer is not returning to the single-digit percentage growth rates it does. generally recorded before the advent of COVID-19. For its third quarter of fiscal 2021, which ended May 9, Costco announced a 22% year-over-year sales increase.
More in-store purchases, less online
The report, released on May 27, extended a streak of impressive quarters. Adjusted comparable sales increased 15.1% with a 12.5% increase in customer traffic. In contrast, e-commerce sales increased by 38% (excluding currency). While still impressive, this was a deceleration from the 66% online growth in the previous year, as well as in the intervening quarters. People return to stores more often and rely less on delivery. This may mean that they are sourcing more when shopping in-store. Investors should keep an eye on how this dynamic is affecting the business, but so far at least Costco is benefiting from the resurgence of in-store shopping.
Costco also became more profitable, in part because it had less spending related to the pandemic. COVID-19 costs fell from $ 0.47 per share in the third quarter of fiscal 2020 to $ 0.09 per share in the latest report, which helped earnings per share rise 46% d ‘year after year.
As usual, membership renewal rates were around 90% and membership fees were 2% of total revenue.
How long can Costco keep it?
Sales growth above 20% is unusual for Costco, but this period of strength may not be over. Revenues from its ancillary businesses, which were operating at low speed or completely shut down during the pandemic, are picking up even though their core business remains strong.
Inflation is also emerging. On the fiscal second quarter conference call, CFO Richard Galanti estimated that inflation would impact 1% to 1.5% for this fiscal year, and on the third quarter conference call, he more than doubled that forecast range to 2.5% to 3.5%. . This could cause some inflation for the company’s fiscal fourth quarter as it would raise prices.
Despite the phenomenal report, Costco shares fell slightly immediately after the release. This reaction may have been due to the stock’s high valuation – over the past few months it has lagged nearly 40 times earnings – and investor belief that Costco will not be able to keep its price going. current momentum.
But the company’s status as an essential retailer with affordable products means it is well positioned to perform well under adverse circumstances, and that’s how it turned out. But don’t look for a slowdown in growth just yet.
New growth opportunities
Long-term growth opportunities exist for Costco, particularly in the number of its stores. The company is set to open 21 new stores this year while aiming to add 20 to 25 in each of the next five years. Galanti said the chain could support 35 new stores per year, but that it likes to take it slow. This guarantees continuous and steady growth in the years to come.
The company opened its first store in China in August 2019, and at the end of the fiscal third quarter, Galanti estimated there were 400,000 members for this location. The company plans to open two more stores in this market over the next two years.
Ancillary businesses are still not operating at pre-pandemic levels, giving Costco another engine of sales growth as the economy continues to recover in the United States and other countries.
Take it all together, and it’s clear Costco can maintain its exceptional performance in the short term, leaving it stronger than ever in a post-pandemic environment.
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