Costco Wholesale Corp. (COST), the largest U.S. warehouse-club chain, is on a roll. It recently raised its dividend 17 percent and shares are trading near their 52-week high.
The board of directors recently approved a $4 billion share-repurchase program on top of the current buyback operation that still has $800 million left, so the stock has additional support going forward. The new buyback effort ends in April 2015.
The company posted profit of $348 million in the quarter ended Feb. 13, up 16 percent from $299 million a year earlier. Sales climbed 11 percent to $20.45 billion.
Costco is firing on all cylinders: Same-store sales gained 5 percent in the United States during the recent quarter and jumped 12 percent overseas. Membership fees, which account for more than half of the company’s operating profit, increased 10.4 percent to $426 million. The company plans to open 14 new stores by the end of its fiscal year in mid-August. Costco is expanding overseas, too, with 157 of its 581 warehouses located there.
Costco’s size gives it tremendous efficiency and bargaining power with vendors. Customers like the idea of being able to buy in bulk and thus cut down on shopping trips as gasoline prices soar above $4 a gallon.
Costco’s gross profit margin has increased in each of its past three fiscal years. “We feel very confident that we're still the most competitive pricing out there, and we still have been able to show some margin improvement,” Costco CFO Richard Galanti said in a conference call to discuss the most recent earnings report.
A winner in its niche
Analysts are impressed by the company’s performance. “Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it offers,” write analysts at Zacks Investment Research.
“The company’s strategy to sell products at heavily discounted prices has helped it to maintain positive growth in beleaguered economic conditions.”
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