Disappointing results from US discounters Dollar Tree (DLTR:NASDAQ) and Dollar General (DG:NYSE) have confirmed the US consumer is under pressure, but the quest for value is playing to the strengths of retail goliaths such as Walmart (WMT:NYSE) and high-flying Costco Wholesale (COST:NASDAQ), whose compelling value propositions are enabling them to gain market share.
Shares in the latter, which posts fourth-quarter earnings on 26 September, are testing fresh all-time highs north of $900 and trade on a forward PE (price to earnings) multiple approaching 60 times, which reflects the warehouse membership retailer’s winning proposition for cash-strapped consumers and the earnings visibility arising from its membership model.
Costco offers low prices to members, including individuals and cash-strapped small- and medium-sized businesses, by focusing on a small number of items and eliminating all the frills and costs historically associated with conventional wholesalers and retailers.
By selling a limited range of cheap items, Costco can pass through any price increases to the customer and makes additional money via the annual membership fee, which it recently hiked for the first time in seven years.
On 5 September, Costco reported a 7.1% rise in net sales to $19.83 billion for the month of August, and said sales edged up 1% to $78.2 billion for the fourth quarter ended 1 September 2024, which included 5.3% US comparable sales growth as well as an 18.9% surge in e-commerce revenues.
Having already announced Q4 sales, investors’ attention will be focused on management’s utterances around the consumer outlook and any resistance to the membership fee increase.
LTR:NASDAQ) and Dollar General (DG:NYSE) have confirmed the US consumer is under pressure, but the quest for value is playing to the strengths of retail goliaths such as Walmart (WMT:NYSE) and high-flying Costco Wholesale (COST:NASDAQ), whose compelling value propositions are enabling them to gain market share.
Shares in the latter, which posts fourth-quarter earnings on 26 September, are testing fresh all-time highs north of $900 and trade on a forward PE (price to earnings) multiple approaching 60 times, which reflects the warehouse membership retailer’s winning proposition for cash-strapped consumers and the earnings visibility arising from its membership model.
Costco offers low prices to members, including individuals and cash-strapped small- and medium-sized businesses, by focusing on a small number of items and eliminating all the frills and costs historically associated with conventional wholesalers and retailers.
By selling a limited range of cheap items, Costco can pass through any price increases to the customer and makes additional money via the annual membership fee, which it recently hiked for the first time in seven years.
On 5 September, Costco reported a 7.1% rise in net sales to $19.83 billion for the month of August, and said sales edged up 1% to $78.2 billion for the fourth quarter ended 1 September 2024, which included 5.3% US comparable sales growth as well as an 18.9% surge in e-commerce revenues.
Having already announced Q4 sales, investors’ attention will be focused on management’s utterances around the consumer outlook and any resistance to the membership fee increase.
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