What happened with COST today?
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Uses news and trading volume to explain the day’s move and how it relates to the market.
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Costco members pay an annual fee to shop at its warehouses and e-commerce sites. Most revenue comes from merchandise purchases, especially groceries and household essentials, rather than membership fees, though those fees are integral to profitability. The business operates internationally but earns most of its sales in the United States and Canada.
Costco keeps prices low by buying large quantities, carrying a limited selection of fast-selling items and moving goods quickly through its distribution network and simple, self-service warehouses. This lets it earn a small margin on each sale while relying on high sales volumes. Its Kirkland Signature private-label products generally sell below national-brand prices while earning higher margins.
Profitability depends on members renewing, shopping more often and spending more per visit. Executive members, who pay an additional annual fee for purchase rewards, account for most merchandise sales. Opening new warehouses also requires suitable sites; local land-use rules and restrictions on large retailers can limit where Costco can expand.
The risk section is the longest, dullest part of the filing. This keeps only what can really hurt you: where it hits, how hard, when it plays out.
Every company claims an edge. Each one is checked against hard numbers like margins and returns: which hold, and which line gives way first.
Walmart challenges Costco both through Sam’s Club membership warehouses and through stores selling low-price groceries and general merchandise to shoppers. Watch Sam’s Club’s sales for the closest comparison with Costco’s warehouse business.
BJ’s Wholesale Club competes with Costco for paying members who buy groceries, general merchandise and gasoline. Its paid membership count is worth watching: both businesses rely on shoppers paying annual fees for access to warehouse-club savings.
Kroger competes with Costco for households’ grocery, pharmacy and gasoline spending through its supermarkets, pharmacies and fuel centers. Its supermarket business is the useful comparison for Costco’s food sales, rather than its advertising revenue from consumer-goods companies.
Target competes with Costco for households’ grocery and general-merchandise spending, selling discounted goods through stores and digital channels. Watch its merchandise sales for a comparison with Costco’s retail business.
Amazon competes with Costco for consumers’ merchandise purchases, offering a broad selection through online and physical stores. Watch its retail pricing and delivery offerings: price and shopping convenience are areas where the two compete.
PriceSmart offers a comparison for Costco’s low-cost membership warehouse model rather than a rival in the same markets: it sells to retail and business members in Central America, the Caribbean and Colombia. Member spending and club expansion are the business drivers to compare across the two.
EIA Crude Oil Stocks Change (Oct/16)
For Costco, weekly U.S. crude oil and gasoline stocks track how much oil and fuel is held in storage; tighter supply can lift pump prices and the dollars Costco records from gasoline sales.
Read falling stocks as a sign of tighter fuel supply that may lift prices and the dollars Costco records from gasoline sales; rising stocks may ease prices and reduce those sales dollars.
Retail Sales MoM (Oct)
Retail sales track how much consumers spend at retailers; stronger spending can support the comparable sales from Costco’s warehouses and e-commerce, its key driver of profitability, as members buy more or spend more per trip.
Stronger retail sales suggest consumers are spending more, which may support Costco’s comparable sales through larger purchases or more spending per trip; weaker sales may mean less support for that key profit driver.
Walmart Inc. earningsWMT
Walmart’s Sam’s Club competes with Costco for warehouse-club shoppers, and Walmart’s report will show whether customers are still buying groceries and general merchandise through that membership model.
Focus on Sam’s Club sales, not Walmart’s total sales. Strong Sam’s Club sales would indicate support for warehouse-club demand in a market Costco also serves; weakness would suggest pressure on spending by this kind of shopper, but would not prove that Costco’s own sales fell.
The Kroger Co. earningsKR
Kroger’s supermarkets compete with Costco for household grocery spending, and Kroger’s report will show whether shoppers are still buying food through supermarkets.
Look at Kroger’s supermarket sales, not advertising revenue or other businesses. Strong supermarket sales would suggest household grocery spending is holding up, a positive signal for the market Costco’s food business serves; weakness would suggest pressure on grocery spending, but Kroger’s figures cannot establish Costco’s traffic, pricing, or margins.
Costco Wholesale Corp earningsThis company
Costco relies on high sales volumes and fast inventory turnover, and its report will show whether comparable sales are growing because members shop more often and spend more per trip, rather than mainly because of gasoline prices or new warehouses.
Read comparable-sales growth excluding gasoline-price and foreign-currency effects alongside changes in average ticket and shopping frequency. If both ticket and frequency support growth, existing members are driving more business; if underlying comparable sales weaken or growth comes mainly from new warehouses, higher total sales do not show that demand at existing locations is equally strong.
