Costco: Still the Gold Standard After All These Years


Despite macro difficulties, it still appears to be a bulk economy. Costco has continued to report impressive results to buoy the sense that it's a gold-standard stock.

The warehouse discounter's second-quarter net income increased 39% to $547 million, or $1.24 per share. Granted, net income included a $0.14-per-share, one-time benefit related to a sizable special dividend paid out before 2012's end to company 401(K) plan participants, but the profit came in well ahead of the $0.90-per-share profit reported this time last year.

Total revenue surged an impressive 8.3% to $24.87 billion. Same-store sales increased 5% in the quarter, even excluding the effects of currency and gas price inflation.

Apparently more consumers are willing to pay up for a Costco membership, too. Membership revenue increased 15% to $528 million. Its membership fee hike at the end of 2011 does not appear to have caused Costco any hardship.

There's little to complain about in regard to Costco's results, although maybe it's worthwhile to mention that its borrowings burgeoned to pay shareholders a huge special dividend at the end of 2012. Still, the company's continued strength and momentum offset the increased debt on a year-over-year basis and mitigate debt-related risks.

Meanwhile, Costco's certainly a big-box store stock investors can depend on at this point, and that's a difficult area right now. Unlike rival discounter Wal-Mart , Costco customers aren't as adversely affected by difficulties such as the payroll tax hikes and higher gas prices. (In fact, Costco's cheap gas at many of its stores is a draw.)

Lately, we've gotten plenty of reminders that Wal-Mart's major low-income clientele is still incredibly sensitive to macro elements. Wal-Mart's same-store sales rose only 1% in its most recent quarter and total revenue increased 3.9%, far less heady numbers than Costco was able to produce.

Best Buy , meanwhile, may have recently beaten analysts' expectations, but it's still a beleaguered big-box play. With same-store sales rising a truly anemic 0.9% last quarter -- which, incidentally, was the all-important holiday quarter -- those who have been enthusiastic about Best Buy (and bidding up its stock price) are likely in for a rude awakening.

Target is a bit middle-of-the-road, itself having recently reported a lackluster fourth quarter. Its profit slipped 2% and same-store sales were flat, hardly impressive for a holiday quarter, either. It's embarking on a quickie Canadian debut to get its growth engine going again, aiming to introduce about 25 stores over the border right away.

Costco, on the other hand, doesn't have these difficulties to overcome, given its tried-and-true business model and brand that's continued to execute. Although its price-to-earnings multiple is higher than the retail stocks named above, at 21 times forward earnings, it's a gold-standard company that's chock-full of performance. It even made our list of 25 Best Companies in America, ranking at No. 9.

All in all, Costco remains a reliable portfolio pick for tough times and the long haul.

Costco's low prices haven't just benefited customers -- shareholders have walloped the market, returning 11,000% over the past two decades. However, with prices near all-time highs, is the ride over for Costco investors? To answer that and more, we've compiled a premium research report with in-depth analysis on Costco. Simply click here now to gain instant access to this valuable investor's resource.

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Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Costco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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