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Category: Costco (COST) and Stock Market
Last updated: 17 June 2020 Stock price of Costco: $301.21 On this page we will look to provide more information and interesting details not often covered by mainstream financial websites of Costco Wholesale a wholesale retailer in the USA with 785 warehouses.
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- Our average warehouse space is approximately 146,000 square feet, with newer units being slightly larger. Floor plans are designed for economy and efficiency in the use of selling space, the handling of merchandise... "
About Costco Wholesale
Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983 in Seattle, Washington. In October 1993, Costco merged with The Price Company, which had pioneered the membership warehouse concept in 1976, to form Price/Costco, Inc., a Delaware corporation. In January 1997, after the spin-off of most of its non-warehouse assets to Price Enterprises, Inc., the Company changed its name to Costco Companies, Inc. On August 30,1999, the Company reincorporated from Delaware to Washington and changed its name to Costco Wholesale Corporation, which trades on the Nasdaq Global Select Market under the symbol "COST." Costco currently operates 785 warehouses, including 546 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 29 in the United Kingdom, 26 in Japan, 16 in Korea, 13 in Taiwan, 11 in Australia, two in Spain, one in Iceland, one in France, and one in China. Costco also operates e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, Taiwan, and Japan.
Quick facts about Costco Wholesale
- Costco Wholesale is listed on the NASDAQ under share code ticker: COST
- Costco Wholesale market capital: $132.99 billion (as at 17 June 2020)
- Number of employees of Costco Wholesale: 254 000
- Revenues in 2019: $152.7 billion
- Earnings per share in 2019: $8.26
- Shares in issue: 442.923 million
- Dividends paid during 2019: $2.60
- Cash on balance sheet: $8.384 billion
- Stockholders equity in Costco Wholesale: $15.584 billion
- Stockholders equity per share: $35.18
- So Costco Wholesale is trading at 8.55 times its stockholders equity per share which is well outside the expected range of between 2 and 4 times that most firms tend to trade at
- The average price to book value of firms in the S&P 500 is 3.7
General overview of Costco Wholesale
We operate membership warehouses based on the concept that offering our members low prices on a limited selection of nationally branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover. When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers. We generally sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.
We buy most of our merchandise directly from manufacturers and route it to cross-docking consolidation points (depots) or directly to our warehouses. Our depots receive large shipments from manufacturers and quickly ship these goods to warehouses. This process creates freight volume and handling efficiencies, lowering costs associated with traditional multiple-step distribution channels.
Our average warehouse space is approximately 146,000 square feet, with newer units being slightly larger. Floor plans are designed for economy and efficiency in the use of selling space, the handling of merchandise, and the control of inventory. Because shoppers are attracted principally by the quality of merchandise and low prices, our warehouses are not elaborate. By strictly controlling the entrances and exits and using a membership format, we believe our inventory losses (shrinkage) are well below those of typical retail operations.
Our warehouses on average operate on a seven-day, 70-hour week. Gasoline operations generally have extended hours. Because the hours of operation are shorter than other retailers, and due to other efficiencies inherent in a warehouse-type operation, labor costs are lower relative to the volume of sales. Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities, reducing labor required. In general, with variations by country, our warehouses accept certain credit cards, including Costco co-branded cards, debit cards, cash, checks, and our proprietary stored-value card (shop card). Our strategy is to provide our members with a broad range of high-quality merchandise at prices we believe are consistently lower than elsewhere. We seek to limit items to fast-selling models, sizes, and colors.
We carry an average of approximately 3,700 active stock keeping units (SKUs) per warehouse in our core warehouse business, significantly less than other broadline retailers. Many consumable products are offered for sale in case, carton, or multiple-pack quantities only. In keeping with our policy of member satisfaction, we generally accept returns of merchandise. On certain electronic items, we typically have a 90-day return policy and provide, free of charge, technical support services, as well as an extended warranty. Additional third-party warranty coverage is sold on certain electronic items.
We offer merchandise in the following categories:
• Food and Sundries (including dry foods, packaged foods, groceries, snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies)
• Hardlines (including major appliances, electronics, health and beauty aids, hardware, and garden and patio)
• Fresh Foods (including meat, produce, deli, and bakery)
• Softlines (including apparel and small appliances)
• Ancillary (including gasoline and pharmacy businesses)
Ancillary businesses within or next to our warehouses provide expanded products and services, encouraging members to shop more frequently. These businesses include gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers. The number of warehouses with gas stations varies significantly by country, and we do not currently operate our gasoline business in Korea, France or China. We operated 593 gas stations at the end of 2019. Net sales for our gasoline business represented approximately 11% of total net sales in 2019. Our e-commerce operations allow us to connect with our members online and provide additional products and services, many not found in our warehouses. At the end of 2019, we operated e-commerce websites in the U.S., Canada, Mexico, U.K., Korea, and Taiwan. Net sales for e-commerce represented approximately 4% of total net sales in 2019. Additionally, we offer business delivery, travel and various other services online in certain countries. We have direct buying relationships with many producers of national brand-name merchandise.
We do not obtain a significant portion of merchandise from any one supplier. We generally have not experienced difficulty in obtaining sufficient quantities of merchandise and believe that if current sources of supply became unavailable, we would be able to obtain alternative sources without substantial disruption of our business. We also purchase and manufacture private-label merchandise, as long as quality and member demand are high and the value to our members is significant.
We buy most of our merchandise directly from manufacturers and route it to cross-docking consolidation points (depots) or directly to our warehouses. Our depots receive large shipments from manufacturers and quickly ship these goods to warehouses. This process creates freight volume and handling efficiencies, lowering costs associated with traditional multiple-step distribution channels.
Our average warehouse space is approximately 146,000 square feet, with newer units being slightly larger. Floor plans are designed for economy and efficiency in the use of selling space, the handling of merchandise, and the control of inventory. Because shoppers are attracted principally by the quality of merchandise and low prices, our warehouses are not elaborate. By strictly controlling the entrances and exits and using a membership format, we believe our inventory losses (shrinkage) are well below those of typical retail operations.
Our warehouses on average operate on a seven-day, 70-hour week. Gasoline operations generally have extended hours. Because the hours of operation are shorter than other retailers, and due to other efficiencies inherent in a warehouse-type operation, labor costs are lower relative to the volume of sales. Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities, reducing labor required. In general, with variations by country, our warehouses accept certain credit cards, including Costco co-branded cards, debit cards, cash, checks, and our proprietary stored-value card (shop card). Our strategy is to provide our members with a broad range of high-quality merchandise at prices we believe are consistently lower than elsewhere. We seek to limit items to fast-selling models, sizes, and colors.
We carry an average of approximately 3,700 active stock keeping units (SKUs) per warehouse in our core warehouse business, significantly less than other broadline retailers. Many consumable products are offered for sale in case, carton, or multiple-pack quantities only. In keeping with our policy of member satisfaction, we generally accept returns of merchandise. On certain electronic items, we typically have a 90-day return policy and provide, free of charge, technical support services, as well as an extended warranty. Additional third-party warranty coverage is sold on certain electronic items.
We offer merchandise in the following categories:
• Food and Sundries (including dry foods, packaged foods, groceries, snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies)
• Hardlines (including major appliances, electronics, health and beauty aids, hardware, and garden and patio)
• Fresh Foods (including meat, produce, deli, and bakery)
• Softlines (including apparel and small appliances)
• Ancillary (including gasoline and pharmacy businesses)
Ancillary businesses within or next to our warehouses provide expanded products and services, encouraging members to shop more frequently. These businesses include gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers. The number of warehouses with gas stations varies significantly by country, and we do not currently operate our gasoline business in Korea, France or China. We operated 593 gas stations at the end of 2019. Net sales for our gasoline business represented approximately 11% of total net sales in 2019. Our e-commerce operations allow us to connect with our members online and provide additional products and services, many not found in our warehouses. At the end of 2019, we operated e-commerce websites in the U.S., Canada, Mexico, U.K., Korea, and Taiwan. Net sales for e-commerce represented approximately 4% of total net sales in 2019. Additionally, we offer business delivery, travel and various other services online in certain countries. We have direct buying relationships with many producers of national brand-name merchandise.
We do not obtain a significant portion of merchandise from any one supplier. We generally have not experienced difficulty in obtaining sufficient quantities of merchandise and believe that if current sources of supply became unavailable, we would be able to obtain alternative sources without substantial disruption of our business. We also purchase and manufacture private-label merchandise, as long as quality and member demand are high and the value to our members is significant.
Membership of Costco Wholesale
Our members may utilize their memberships at our warehouses worldwide. Gold Star memberships are available to individuals; Business memberships are limited to businesses, including individuals with a business license, retail sales license or comparable document. Business members may add additional cardholders (affiliates), to which the same annual fee applies. Affiliates are not available for Gold Star members. Our annual fee for these memberships is $60 in our U.S. and Canadian operations and varies in other countries. All paid memberships include a free household card. Our member renewal rate was 91% in the U.S. and Canada and 88% on a worldwide basis at the end of 2019. The majority of members renew within six months following their renewal date. Our renewal rate is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.
Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S. and Canada, for an additional annual fee of $60. Executive memberships are also available in Mexico, the U.K., and Korea, for which the additional annual fee varies. Executive members earn a 2% reward on qualified purchases (up to a maximum reward of $1,000 per year in the U.S. and Canada and varies in Mexico, the U.K. and Korea), which can be redeemed only at Costco warehouses. This program also offers (except in Mexico and Korea), access to additional savings and benefits on various business and consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing. These services are generally provided by third parties and vary by state and country. Executive members, who represented 39% of paid members at the end of 2019, generally shop more frequently and spend more than other members.
- Gold Star . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,900
- Business, including affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000
- Household cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,600
- Total cardholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,500
Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S. and Canada, for an additional annual fee of $60. Executive memberships are also available in Mexico, the U.K., and Korea, for which the additional annual fee varies. Executive members earn a 2% reward on qualified purchases (up to a maximum reward of $1,000 per year in the U.S. and Canada and varies in Mexico, the U.K. and Korea), which can be redeemed only at Costco warehouses. This program also offers (except in Mexico and Korea), access to additional savings and benefits on various business and consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing. These services are generally provided by third parties and vary by state and country. Executive members, who represented 39% of paid members at the end of 2019, generally shop more frequently and spend more than other members.
Intellectual Property of Costco Wholesale
We believe that, to varying degrees, our trademarks, trade names, copyrights, proprietary processes, trade secrets, trade dress, domain names and similar intellectual property add significant value to our business and are important to our success. We have invested significantly in the development and protection of our well-recognized brands, including the Costco Wholesale® trademarks and our private-label brand, Kirkland Signature® . We believe that Kirkland Signature products are high quality, offered to our members at prices that are generally lower than national brands, and that they help lower costs, differentiate our merchandise offerings, and generally earn higher margins. We expect to continue to increase the sales penetration of our private-label items. We rely on trademark and copyright laws, trade-secret protection, and confidentiality, license and other agreements with our suppliers, employees and others to protect our intellectual property. The availability and duration of trademark registrations vary by country; however, trademarks are generally valid and may be renewed indefinitely as long as they are in use and registrations are maintained.
Employees of Costco Wholesale
Our employee count was as follows in 2019
Approximately 16,000 employees are union employees. We consider our employee relations to be very good.
- Full-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,000
- Part-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000
- Total employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,000
Approximately 16,000 employees are union employees. We consider our employee relations to be very good.
Competition of Costco Wholesale
Our industry is highly competitive, based on factors such as price, merchandise quality and selection, location, convenience, distribution strategy, and customer service. We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including supermarkets, supercenters, internet retailers, gasoline stations, hard discounters, department and specialty stores, and operators selling a single category or narrow range of merchandise. Walmart, Target, Kroger, and Amazon.com are among our significant general merchandise retail competitors. We also compete with other warehouse clubs (primarily Walmart’s Sam’s Club and BJ’s Wholesale Club), and many of the major metropolitan areas in the U.S. and certain of our Other International locations have multiple club operations.
Seasonality of Costco Wholesale earnings
The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season.
Costco Wholesale (NASDAQ: COST) stock performance
The following graph compares the cumulative total shareholder return (stock price appreciation and the reinvestment of dividends) on an investment of $100 in Costco common stock, S&P 500 Index, and the S&P 500 Retail Index over the five years from August 31, 2014, through September 1, 2019.
Costco (COST) stock valuation
So what is Costco Wholesale (NASDAQ: COST) stock worth based on the release of their latest earnings report? Based on their earnings report and the guidance provided our valuation models provide a target (full value) price for Costco of $224.30 a stock. We therefore believe that the stock of Costco Wholesale is overvalued.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $224.30. So a good entry point into Costco stock would be at $201.90 or below. We expect the stock of Costco Wholesale to pull back from current levels to levels closer to our target (full value) price in coming weeks and months as even at $224.30 we were fairly generous regarding the group's short and medium term prospects in our valuation models.
Since the stock of Costco is trading at well above our suggested entry point and our full value price we rate the stock of Costco as avoid.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $224.30. So a good entry point into Costco stock would be at $201.90 or below. We expect the stock of Costco Wholesale to pull back from current levels to levels closer to our target (full value) price in coming weeks and months as even at $224.30 we were fairly generous regarding the group's short and medium term prospects in our valuation models.
Since the stock of Costco is trading at well above our suggested entry point and our full value price we rate the stock of Costco as avoid.