Costco (COST), with its high-income membership base, steady same-store sales growth, ongoing expansion pace, and strong e-commerce performance, has shown resilience beyond retail peers such as Walmart (AMZN) under inflationary pressure. Despite its high valuation, the risk resistance of its business model and long-term growth potential make it a more worthwhile retail stock to hold.
Over the past decade, Walmart has made tremendous efforts to reshape its image and has achieved results. It has grown into the second-largest e-commerce company after Amazon, built a network of pickup kiosks, and attracted more high-income consumers. Walmart pointed out that rising oil prices have squeezed household budgets, and consumers have reduced spending on discretionary items.
Nevertheless, this same-store sales growth rate was only half of the growth rate Costco recently achieved, highlighting Costco’s resilience during a challenging period in the retail industry. Costco’s advantage lies in its customer base, which is mainly composed of high-income earners who are less sensitive to inflation, especially when the stock market is at historic highs, as Costco continues to create value for its members.
Costco is one of the most expensive retail stocks on the market, even though its share price has fallen 5% over the past year. Its price-to-earnings ratio is 43 times, even higher than Amazon’s. By comparison, Walmart’s price-to-earnings ratio is 39 times. Costco has fewer than 1,000 stores worldwide, indicating that it still has ample room for growth, especially in countries such as Canada and China, where it has proven popular.
After experiencing growth during the pandemic and the post-pandemic era, Costco continues to deliver strong results, while other retailers are still struggling with inflation. Costco may need more time to digest its valuation, but the stock still looks like a long-term winner.
Costco’s fourth-quarter earnings report released after the market close on Thursday did not have much impact on its share price, with the stock flat in after-hours trading. However, this may be more of an affirmation of the company’s reliability, because Costco once again delivered a strong round of results, surpassing almost all retail peers.
As consumers feel the pressure of inflation and the high cost of living, Costco’s same-store sales rose 6.7% after adjusting for fuel prices and exchange rates. Revenue for the quarter increased 11.1% to $95.7 billion, exceeding the expected $94.89 billion. On the earnings side, earnings per share rose 15% to $6.75, although this included a $0.15 tariff refund benefit, equivalent to nearly $70 million.
If there was a weak link in the earnings report, it was that membership fee revenue rose only 7.3%, slowing for the third consecutive quarter. However, the company is still adding members and is delivering on the three pillars of its growth: new members, same-store sales, and new store openings. In addition, its e-commerce growth remained strong at 19.5%, showing that its online retail platform remains popular.
