Consumers are becoming more and more socially conscious, and want the goods and services they use to measure up. In truth, it doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer.
Often, the added expenses a company incurs from paying workers a little more, monitoring resource sourcing, or going the extra ethical mile are small downsides when compared to the huge potential upside. And where there's company upside, there's investor upside.
Costco (Nasdaq: COST ) is just such a company. Let's dive deep into the bulk retailer, evaluate its socially conscious policies and practices, and take a hard look at the numbers. We'll evaluate how it's performing as a business, as an investment, and as a socially conscious enterprise.
Olive oil by the gallon and a reasonably paid CEO
Costco probably isn't the first company that pops into mind when you think of a socially responsible enterprise. Whole Foods (Nasdaq: WFM ) ? Sure, just look at the hippie, bulk-granola name. Starbucks (Nasdaq: SBUX ) , the touchy-feely coffee company from Seattle, capital city of the socially responsible universe? Definitely.
But Costco? Absolutely. Just from a slightly different -- but no less legitimate -- angle. Costco genuinely cares about the health and wealth of its employees and the company's effect on the community. For example:
- Costco has stalwartly resisted Wall Street pressure to cut employee wages and benefits. That's because healthier and better-paid employees make for happier employees, who deliver better customer service, something the company is known for.
- Again resisting pressure from the Street, Costco dogmatically keeps its product margins low, which keeps prices low. And, per Motley Fool analyst Alyce Lomax, keeping prices low is arguably a socially responsible effort, as well as a surefire foot traffic- and profit-driver.
- Finally, CEO Jim Sinegal pays himself modestly -- a very reasonable $350,000. This shows a commitment to building the business rather than getting everything he can at shareholder and worker expense.
In 2008, Sinegal told Fast Company, "We're trying to build a company that's going to be here 50 and 60 years from now. We owe that to the communities where we do business. We owe that to our employees, that they can count on us for security."
That's not the sort of thing you hear everyday from a CEO, and it sums up nicely why Costco deserves the title of "socially responsible." Now let's take a look at the numbers and see how the business and the stock are performing.
Sell in bulk, make profits in bulk
Costco's fourth quarter and 2011 fiscal year ended Aug. 29, and by all accounts business is positively booming:
- For the quarter, net sales were more than $27 billion, a whopping increase of 17% year over year. For the year, net sales were $87 billion, up a healthy 14% over 2010.
- Net income for the quarter was $478 million, or $1.08 per share, up a solid 11% year over year. Net income for fiscal 2011 was $1.46 billion, or $3.30 per diluted share.
- Comparable-store sales, always an important measure for retailers, were also more than solid. For the quarter and the year they were up a very healthy 12% and 10%, respectively.
Finally, Costco's balance sheet holds $5.6 billion in cash, cash equivalents, and short-term investments, along with a little more than $1.2 billion in long-term debt. Nothing to complain about here -- or anywhere else in the company's books, for that matter.
Since 1976, still making money and a difference
Costco's stock trades for about $84 per share, with a P/E of 25. Admittedly, that valuation is significantly higher than that of Sam's Club operator Wal-Mart (NYSE: WMT ) , which has a P/E of 11. Target (NYSE: TGT ) , now edging into Costco territory with superstores that carry groceries, has a P/E in the same range as Wal-Mart's. So does Big Lots (NYSE: BIG ) , though Family Dollar's (NYSE: FDO ) P/E is creeping into the upper teens.
Regardless, Costco gives you a lot of company for the multiple -- a company that's still growing and, after all these years, still trying to do the right thing. Are any companies perfect in this regard? No, but, to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.
Costco's fourth-quarter and 2011 fiscal year results are proof positive there's no inherent contradiction between making money and making a difference. Read more about Costco and another Motley Fool retail favorite that's healthy, wealthy, and making a difference in its own way in this special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." Get your copy while it's still available by clicking here.
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