Catching Up With Costco

This article is part of our real-money portfolio series.

Warehouse powerhouse Costco (Nasdaq: COST  ) continues to be one of those rare stocks investors can hold with relatively little worry.

Costco's fiscal third-quarter net income increased 19% to $386 million, or $0.88 per share. Total revenue increased 8% to $21.85 billion, including a 9% increase in membership fees. The warehouse retailer's same-store sales increased a solid 5%.

In an interesting turn of events, Costco increased its quarterly gross margin; the specter of eroding gross margins distressed analysts last quarter. Of course, people can always find something to fret about. This quarter, Costco's revenue and same-store sales were lower than analysts expected even as gross margin expanded.

Is it anything to worry about? Retailers are all working hard to stay competitive in the current macroeconomic climate. Sacrificing profit margin to encourage higher sales volume is a common strategy these days.

Whole Foods Market (Nasdaq: WFM  ) discussed price investment in its most recent quarter, expressing a willingness to sacrifice the impressive but unsustainably high margins it delivered in that period.

Wal-Mart (NYSE: WMT  ) even recently delivered recent financial results that gave its shareholders something to feel good about for a change. That discount giant's been lowering prices to try to woo shoppers from rivals like Costco. Too bad Wal-Mart's Mexican bribery scandal throws a massive shadow over any such competitive victories.

Costco's quarter tells me it's still keeping up just fine, even if its sales did decelerate a bit recently. The macroeconomic environment may be a difficult one to navigate, but hey, it's no Tiffany (NYSE: TIF  ) , which is suffering tremendously given the weak consumer climate and the dismal economic situation internationally. When big-ticket, completely discretionary luxuries are your major focus, you can lose your sparkle really fast.

I continue to consider Costco a solid hold for the long term; it's one of the stocks I worry about least in the real-money portfolio I'm managing for Fool.com.

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