Please ensure Javascript is enabled for purposes of website accessibility

Here's Why The Best Is Yet to Come for Costco

By Daniel B. Kline – Apr 28, 2019 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The warehouse club has a very dedicated customer base.

Most companies wish they had the loyalty that Costco (COST -0.62%) has earned from its members. The warehouse club succeeds because when people join, they stay members. That immunizes the company against any changes in the retail landscape.

But Costco doesn't rest on its laurels. The company has evolved over the past few years, embracing digital and delivery. It was able do that slowly, however, taking the time to see what worked, because at its core it remains a club that people join in order to save money.

The exterior of a Costco warehouse.

Costco has steadily grown its membership. Image source: Costco.

Business is solid

While revenue and same-store sales are not Costco's most important metrics, the chain has done well in both areas. The chain reported net income of $889 million, or $2.01 per share in the second quarter, a 27% increase compared to the same quarter a year ago. In addition, the company delivered a 7.3% increase in net sales, and saw comparable store sales in the United States rise by 7.4%.

The most important numbers for Costco, however, are its renewal rates and the amount of new members it adds. And those numbers continue to be stellar as well. 

"In terms of renewal rates in the second quarter, our U.S. and Canada member renewal rates in Q2 came in at 90.7%, up from 90.5% 12 weeks earlier at Q1 end," CFO Richard Galanti said during the Q2 earnings call. "And, worldwide, the rate improved to 88.3%, up from 88% at Q1 end. So, improvement in our renewal rates."

Those numbers are stellar, and in line with the figures the company has steadily delivered quarter after quarter, year after year. They show that the company has a loyal customer base that has not left it even as digital options for low-cost shopping have increased. Costco has not just done a good job holding onto its customers, it's also adding to its membership base.

"In terms of the number of members at Q2 end, member households and total cardholders, we ended Q1 12 weeks earlier with 52.2 million member households. At Q2 end, there was 52.7 million," said Galanti. "And total cardholders increased from 95.4 million at Q1 end to, 12 weeks later at Q2 end, 96.3 million."

Costco has also continued to steadily grow its more expensive Executive membership base. That category closed Q2 at about 20 million, an increase of 341,000 since the close of Q1.

It's about loyalty

Costco's customers like the company's core value proposition. They've shown that they're going to remain loyal to the chain even if other choices might offer similar value and more convenience. The warehouse club was even able to raise its membership rates (albeit modestly) in June 2017 without seeing a drop in members.

There's nothing particularly exciting about Costco's business. It's a company that takes a slow and steady approach, with a laser focus on keeping its prices low and its merchandise mix interesting. That approach works: The company keeps growing its business, and there's no reason to believe that won't continue for the foreseeable future.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Costco Wholesale Stock Quote
Costco Wholesale
$530.37 (-0.62%) $-3.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.