Discount giant Costco (NASDAQ:COST) is one of the most well-run companies in retail, and its fiscal second-quarter report demonstrated that point once again. It beat expectations on profits, and revenue was up strongly in the U.S., thanks to higher traffic and rapid e-commerce growth. Internationally, however, the results were not as impressive.
In this segment from Motley Fool Money, host Chris Hill and senior analysts Andy Cross, Ron Gross, and Jason Moser discuss the retailer's strategy, its results, and more.
A full transcript follows the video.
This video was recorded on March 8, 2019.
Chris Hill: Shares of Costco up 5% on Friday after second-quarter profits came in higher than expected. Ron, you looked at the quarter. What's your headline?
Ron Gross: I'd have to go with U.S. same-store sales excluding gas up 7.4%.
Hill: That's strong!
Gross: That's strong! It's a great quarter! Total revenue up 7%. Some weakness internationally, so we do have to address that. Less than 1% same-store sales increase internationally. Canada was actually down slightly. But bulk of this business is U.S., so it all offsets to shake out to be same-store sales increased companywide 5.4%. Very, very strong. Largely the result of a 4.9% increase in traffic to stores and websites. Online sales rose 20%. Membership revenue up 7%. Margins were up, translates to a profit increase of 27%. Fantastic quarter for Costco.
Hill: Great numbers in the U.S., but as you said, international...I hesitate to use the phrase "weak spot," but it seems obvious to me that Costco management really hasn't been able to make international work close to the same way it does here in the States.
Gross: That's correct! I'm glad to see that they've rolled that out in a very measured pace. If you plow into some region with huge capex, and it just doesn't work out, it could turn a great business into a weak business.
One final thing I want to say is, they did just raise wages for their hourly workers to $15 an hour. That certainly has implications to the cost structure. But in the end, I think it's a great move. Very shareholder-friendly.