Costco Clinches Another One

Tom Gardner's Motley Fool Stock Advisor recommendation Costco (Nasdaq: COST  ) delivered the goods once again. In the latest quarter, sales increased 14% and net income skyrocketed 29% to easily beat analysts' estimates. COST may be the symbol, but this is a company that delivers profits.

While Wal-Mart (NYSE: WMT  ) shareholders lower their heads every time living wages are discussed, Costco's industry-leading pay package still allows it to produce more dollars of profit per employee than Wal-Mart. Those higher wages and benefits do show up in Costco's operating margins. At 2.9% (up from 2.7% last year), they are roughly half those at Wal-Mart and Target (NYSE: TGT  ) .

But, consider that the company has net cash of $0.9 billion. Compare that to Wal-Mart and Target with net debts of $25.6 billion and $10.3 billion, respectfully. Costco is certainly positioned nicely for a world of increasing interest rates and has the financial flexibility to chase new opportunities.

Tom Gardner has written that he expects Costco to deliver 11%-13% growth over the next 10 years. The company is making him look good with 14% growth over the last two quarters.

Speaking of growth, same-store sales, a good gauge for retailers' growth, were an extremely strong 11% (and have been 11% for three straight quarters). Compare that to Wal-Mart's same-store sales increase of 6.4% and Target's 6.6%. Costco is certainly the rabbit of the three.

Tomorrow, Costco will pay its first dividend ever -- $0.10 a share. That 1% yield will not qualify the company for consideration in the Motley Fool Income Investor, but it does show the company is intent on returning cash to shareholders.

Costco offers a strong balance sheet and excellent same-store sales increases. Selling at 22 times 2004 estimated earnings, it is a reasonably priced company offering excellent long-term growth prospects.

Are high gasoline prices going to keep buyers headed for Costco (to get groceries), but hurt the results at other retailers? Join The Motley Fool discussion boards to talk to fellow investors about Costco , Target, and the other retailers.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.