Costco Wholesale (NASDAQ:COST) was a big beneficiary when the pandemic first affected our lives last March. Since it was recognized as an essential retailer, consumers flocked to the company’s warehouses to purchase items ranging from necessities like toilet paper and groceries to bigger-ticket goods such as appliances and electronics.
On May 27, the business reported another fantastic quarter, a sign that the strong momentum hasn’t faded. If it wasn’t already obvious, there’s one very important characteristic about Costco that became fully apparent. And it’s something wealth-seeking investors must pay attention to.
Read on to find out exactly what that is.
Recap of Q3 results
Revenue soared 21.5% during the 12-week period that ended May 9, bringing Costco’s total quarterly sales to a whopping $45.3 billion. Adjusted same-store sales (or comps) in the U.S. (excluding effects of gas and foreign exchange) rose 15.2%. Adjusted e-commerce comps increased 38.2%, driven by strong gains in jewelry, home furnishings, and sporting goods, among other departments.
Net income skyrocketed 45.6% from the year-ago period, and Costco now has 109.8 million total cardholders. These members generated $901 million in fees during the quarter, a 10.6% jump from third-quarter 2020.
The business is extremely healthy, and is poised to continue its growth streak. Management expects 21 net new warehouse openings for the current fiscal year, with 25 planned in each of fiscal 2022 and fiscal 2023. Costco has 809 total locations today.
Here’s what really matters
Costco’s remarkable growth more than a year after the lockdowns, when things are slowly reopening, is a telltale sign that the business is recession-proof. This is the primary takeaway for investors, and I think it does a great job at explaining why the company is performing so well now and historically.
Costco increased its sales each and every quarter of 2020. And if we look back at the financial crisis of 2008 and 2009, we see the same resiliency. Revenue only fell 1.5% in fiscal 2009, before bouncing back to 9.1% growth the following year.
I believe there are two crucial reasons why Costco is such a dependable business in both good times and bad.
First, the company’s membership-based model keeps Costco as the retailer of choice on consumers’ minds. It doesn’t matter where interest rates are or what the stock market is doing. Shoppers still look at Costco as their favorite store because they know it has everything they need in one convenient trip, all at the lowest prices around. Supporting this is a Q3 renewal rate that stood at 91% in the U.S. and Canada.
Second, Costco does a wonderful job of taking care of its employees, and is recognized as a great place to work. When the pandemic first hit, the company announced a $2 (per hour) wage hike for hourly employees. In the most recent quarter, management said that as this was being discontinued, they instituted a permanent raise. This brings the Costco minimum wage to $16 an hour for U.S. store workers.
The final word
Jeff Bezos, founder and CEO of Amazon (NASDAQ:AMZN), thinks that it’s more important for businesses to focus on the things that don’t change, as opposed to trying to predict what will change. In 10 or 20 years’ time, we can be certain that people will still want low prices, a wide selection, and a great shopping experience, which further strengthens Costco’s competitive advantage.
Selling essential, sought-after products at low prices will always be what consumers want. Additionally, treating and paying employees fairly leads to a sustainable business model. Shareholders will keep being rewarded as long as customers and employees are as well. Therefore, this is an all-weather stock and a recession-proof company.
For long-term investors looking for a safe and reliable way to build wealth, look no further than Costco.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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