Boring Portfolio

Boring Portfolio
Costco Joins Bore
Realizes Destiny

By Dale Wettlaufer (TMF Ralegh)

ALEXANDRIA, VA (Sept. 13, 1999) -- The Bore port acquired 110 shares of Costco Wholesale (Nasdaq: COST) at $68 15/16 this morning, pursuant to Friday's announcement. Each Fool portfolio, by the way, announces its intent to make a transaction in advance of engaging in that transaction.

Costco Wholesale is the product of a very storied heritage in the retailing industry, as the format and many of the ideas behind the business model come from the legendary Sol Price. Sam Walton, in his autobiography Made in America, singles out Price for his innovation and creativity and also says unabashedly that he borrowed many ideas from Price. If you don't know Costco or you're going on perception, check out a recent article from Fortune magazine on the stores.

Costco isn't just huge cartons of toilet paper and giant cases of candy. It is those things, to be sure, and it can be very handy to get packages of name-brand products that are twice the size of normal retail packages at the same price. But Costco is also very high-end merchandise such as a $10,500 pair of diamond earrings that would cost at least 50% more elsewhere, a $140 pair of Revo sunglasses that retail for $275 at another store or a little less than $200 at an eyewear discounter, a Montblanc Leonard Bernstein pen for $300 that would sell for $495 elsewhere, professional-quality name-brand (such as Sitram) and alternative-brand cookware at more than 50% discounts, consumer electronics, appliances, lawn & garden equipment, etc.

If you're not there for big-ticket items, you can stock up the pantry and also pick up excellent fresh bakery products, top-quality seafood and meats, a very good selection of wines, prepared sushi, great produce, fresh-squeezed orange juice, prepared foods, health & beauty aids, photo processing, deep-discount gasoline, and prescription drugs (among the 3,600 to 4,400 stockkeeping units maintained by the store) all at unbelievable prices.

The philosophy of the company is that if they can't save you money on something, they won't sell it. From the company's investor relations page:

According to Jim Sinegal, the Company's President and Chief Executive Officer, "Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing and accounts receivable. We run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members."

The best salespeople the company has, in fact, are its customers, who renew their yearly memberships (ranging in the mid-$30 range across the entire membership) at the rate of 85% per year (as of Q3 1999) and keep coming back for the prices and the no-questions-asked money-back guarantee the company gladly backs. Like, though, it's not just one aspect of the retailer or another that makes it stand out against the competition -- it's the product quality, the hugely discounted prices, the service, and the merchandising, all executed at a high level at all times, that fit together to make a great company here.


Attached is the spreadsheet I'm working on, if you'd like to follow what I'm doing. I've done models on it before, but I'm basically starting from the ground up again to see if I can build a cleaner model. Some of the old valuation work is left in the spreadsheet and the trailing financials may have some old data in there. I wouldn't pay much attention to the model as yet.

More on Costco on Wednesday.

Costco Q3 conference call

The Fool is hiring. Answer the call.

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