Costco is Rock Solid for the Long Run

Source Article
Costco Net Falls on Litigation, ‘Higher-Ticket’ Sales Decline | www.bloomberg.com (article)

Implications:
1) Costco's results impacted by Litigation settlement

2) Fuel Price declines drove revenue Dip

3) Still a Great Retailer

Analysis:

Costco showed declining profits this quarter, but 40% of the decline was caused by a litigation settlement.

Costco, having the highest member demographic of the warehouse club type retailers, was most affected by the dip in consumer discretionary spending, but it will also be the best positioned to bounce back.

Costco treats its customer-members quite well, has a liberal returns policy, and sells high-quality goods at excellent prices. The fact that income only dropped as much as it did is a testament to this customer friendly philosophy.

Sourcing items at Costco is one of small businesses biggest cost savers, and as has been said many times in the general and business press, small business will lead the way out of this recession.

They are a major volume gasoline retailer now, and the revenue decline is what all the oil companies and distributors (jobbers) experienced, but Costco sells large volumes of gasoline per site, and as prices have firmed back up over the past 6-8 weeks, this bodes well for the revenue bounceback, too. Plus they are ultra competitive in pricing fuel for members, so higher prices help them that way, too.

Sam's Club and BJ's(NYSE:BJ) product mix is skewed more to consumables, so they were better able to get through the quarter, but that is a long-term strength for Costco, not a weakness.

Costco may have had a rough quarter, but they are a model retailer who will only benefit as the recovery starts, whenever that may be.