A transition in the Chief Executive Officer role can be a challenging process, particularly when the preceding CEO co-founded the company. For large, industry-leading companies, it is even more difficult for keep things running smoothly after a CEO transition. But in 2012, Costco Wholesale (COST) promoted Craig Jelinek to the CEO role.
It is hard to argue that Jelinek has done an incredible job as Costco’s CEO. Costco continues to execute on its growth plan, particularly in the context of a very difficult operating environment for the retail industry. Due in no small part to the leadership of Jelinek as CEO, Costco continues to generate growth rates well above most of its competitors. The stock has rewarded investors as well, through share price appreciation and high dividend growth.
Career Overview and Progression
Jelinek has spent over 30 years with Costco, in a variety of roles. He first joined the company in 1984 as a warehouse manager. Over the next 20 years, he worked his way up through a number of store and regional management positions. In 2004, he was named Executive Vice President in charge of Merchandising. By 2010, he was promoted to President and COO, before being elevated to the role of CEO in January 2012. He also serves on the company’s Board of Directors.
Jelinek filled an especially important role with Costco. He took over as CEO immediately succeeding Jim Senegal, who co-founded the company and served as its CEO for nearly 30 years. As a result, it was hugely important that Jelinek had an intimate understanding of the business and its core strategies. Because of this, Costco barely skipped a beat after Senegal passed the baton to Jelinek. Since January 1st 2012, Costco shares have more than tripled in value, assuming reinvested dividends.
Jelinek’s success as CEO is largely due to his ability to maintain focus on the core principles that built Costco into one of the nation’s largest retailers. Specifically, Jelinek continued to put the customer first. Virtually everything Costco does is designed to serve the customer better, from its focus on delivering every day low prices, to how the company treats its employees. The results speak for themselves.
Bucking the Trend
Investors have probably heard about the troubles facing the retail industry. Brick-and-mortar retailers with a large presence in malls are under great pressure from e-commerce competition. As consumers increasingly take their shopping online to Amazon and other Internet-based retailers, physical stores are seeing less traffic virtually across the board. There are only a few pockets of the retail industry that are not suffering from these trends. Fortunately, Costco is one of them.
In the most recent quarter, Costco reported 10% sales growth, thanks to 7.5% comparable sales growth, a key metric for retailers that measures growth at stores open at least one year. Costco’s e-commerce platform generated 26% growth from the same quarter a year ago. Earnings-per-share came in at $1.73 for the quarter, an increase of 19% year over year.
CEO transitions can be a messy process. And there is always a risk that the new CEO will take the company in a bad direction. But CEO is a case study for how to engineer a successful change in the CEO role.
Under the leadership of CEO Craig Jelinek, Costco has fought off Amazon and other Internet retailers. It has successfully built its own e-commerce platform, while its physical stores continue to see strong customer traffic. Costco is one of the strongest growth stocks in the retail industry.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
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