Costco Clinches Another One

How much is your life worth? According to a Florida businessman who is suing the Atkins Diet folks, his life is worth $15,000. That's the amount he's seeking in a suit that claims in two years the high-fat, low-carb diet nearly killed him, raising his cholesterol level to 230 and clogging his arteries to the point where he needed an angioplasty.

He lost weight, though. Can you say "thrown out of court"?

In today's Motley Fool Take:

Costco Clinches Another One

By W.D. Crotty

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 aboutCostco, Target, and the other retailers.

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Home Depot Drills Bits

By Rick Aristotle Munarriz (TMF Edible)

A Home Depot(NYSE: HD) shopper knows all about fractions. From wood plank measurements to drill bits, home improvement is an exact science. Apparently, Home Depot wants its shareholders to start thinking the same way.

Yesterday afternoon, the retailer announced that it was hiking its quarterly dividend by 21% to $0.085 a share. Giving its shareholders a larger payout is commendable. As long as it won't hurt the company's balance sheet or get in the way of the expansion process, kudos. Now that the folks behind the orange aprons have matured as a company -- sales and earnings are expected to grow by 10% to 14% this year -- it makes sense to attract the income investor over the disillusioned hypergrowth one. Trying to compete with the softer image of Lowe's(NYSE: LOW) or expanding its service offerings aren't capital-intensive pursuits, so the meatier yield works.

But what's the deal with that halfpenny? Home Depot isn't the only one to do this. Companies with small dividend amounts play the fractions game. And, yes, in case you're wondering, if you do happen to have an odd number of shares, that halfpenny will get rounded up whole. But why slice Lincoln coppers, even in theory?

It's like that petulant five-year-old kid who insists she's actually five and a half. Sure, sweetie. If you say so.

Some companies do it to give themselves room to keep a string of dividend hikes going. If the future isn't exactly booming, a fraction higher will still be a baby step in the promised direction. This approach is more like the petulant parent trying to punish the petulant kid.

"When I count to three, you're going to be grounded! I mean it this time. One. Two. Two and a half. Two and three-quarters. . ."

That isn't Home Depot this time, as it could have simply gone from seven pennies to eight. It's not alone. Just looking over some companies going ex-dividend today you see plenty of fractional culprits: Abercrombie & Fitch(NYSE: ANF) is paying $0.125 this quarter. I thought the chain wasn't afraid of the teens? Applied Biosystems(NYSE: ABI) isn't just splicing genes; it will be paying out a dividend of $0.0425 a share.

Naturally, entities like REITs and closed-end income funds are excused from this rant because they are required to pay out as much as they take in. While I trust Mathew Emmert isn't overly concerned with fractional pennies when he screens for promising Motley Fool Income Investor stock picks, I'm sorry it bugs me. Then again, drill bits and wood planks bug me, too.

Longtime Fool contributor Rick Munarriz will accept fractions in shoe and hat sizes, but he's got his limits. He owns no shares of companies mentioned in this story.

Discussion Board of the Day: Building/Maintaining a Home

Have you checked out our Home Center and feel like remodeling your home yourself? Does Home Depot's fractional payout inspire you to spend more at the home-improvement superstore? All this and more -- in the Building/Maintaining a Home discussion board. Only on Fool.com.

Genealogy of an Internet Company

By Mark Mahorney

Around and around it goes; where it stops, nobody knows. Shopping.com has been around, and not just the domain name; the company itself has changed hands several times. Former Navy Seal-turned-entrepreneur Robert J. McNulty fired up the e-commerce site in 1996, a bit ahead of its time. Many people weren't yet comfortable with making transactions over the Net, and surfing an image-dependent site was a tedious and frustrating experience on the slow servers and connection speeds available at that time. It first went public in 1997.

But it was trading over the counter when AltaVista bought it for $220 million, or $19 a share, way back in 1999. AltaVista was then owned by Compaq, which of course is now owned by Hewlett-Packard(NYSE: HPQ). And AltaVista is now owned by Overture, which is now a wholly owned subsidiary of Yahoo!(Nasdaq: YHOO).

The ownership of these companies is a proxy for the Web itself. The same venture capital firm that incubated Shopping.com started up GoTo.com, which later became Overture. It's a tangled web, to say the least.

Anyway, Compaq and AltaVista had a change of focus in 2001, outsourced the shopping business to privately owned Dealtime, and gave up the domain name. Last year, Dealtime acquired the consumer product review site Epinions. Since then it has relaunched Dealtime as Shopping.com, but kept the differentiated Epinions.com up and running.

Now Shopping.com is planning to go public once again. Both Dealtime and Epinions have been profitable for a couple of years, but Dealtime had been using Shopping.com as a testing ground. It became profitable for the first time last year with the Dealtime business with revenues of $67.2 million and net income of $6.9 million. Surprisingly, though, about one-third of its revenue comes not from product sales, but through displaying ads for Google. And a large portion of its traffic also comes from Google.

It's pricing 7.8 million shares at $14 to $16 per share, but hasn't yet announced a date for the IPO, from which it hopes to raise about $75 million. Goldman Sachs(NYSE: GS), Credit Suisse First Boston(NYSE: CSR), Deutsche Bank(NYSE: DB), and Piper Jaffray(NYSE: PJC) are managing the deal. And it will trade on the Nasdaq with the ticker symbol SHOP.

We'll just have to wait and see how crazy this IPO gets, but it's important to keep in mind just how dependent on Google the company is. That's an added risk.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.

Quote of Note

"Painting: The art of protecting flat surfaces from the weather and exposing them to the critic." -- Ambrose Bierce

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For a list of all our stories from today, see our Today's Headlines page.




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