Key Points
Costco reported 6.7% comparable sales growth and beat estimates on the top and bottom lines in its earnings report.
Walmart just reported its slowest comparable sales growth in six years.
Costco still has a lot of room for growth.
Costco's (NASDAQ:COST)fourth-quarter earnings report after Thursday didn't do much to move the stock, as it was flat after hours. However, that may be more of a credit to the company's reliability than anything else, as Costco delivered another round of strong results, outperforming virtually every one of its retail peers.
At a time when consumers are feeling pressure from inflation and the high cost of living, Costco's comparable sales rose 6.7% adjusted for fuel prices and foreign exchange. Revenue in the quarter rose 11.1% to $95.7 billion, beating estimates at $94.89 billion.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
On the bottom line, earnings per share rose 15% to $6.75, though it earned a $0.15 benefit from tariff refunds, equivalent to nearly $70 million.
If there was a weak spot in the earnings report, it was that its membership fee revenue rose just 7.3%, its third straight quarter of slowing growth in that category. However, the company is still adding members, and it's delivering all three pillars of its growth: new members, same-store sales, and new store openings.
Additionally, its e-commerce growth remained strong at 19.5%, showing its online retail platform remains popular.
Image source: Getty Images.
Costco vs. Walmart
As the largest warehouse club chain, Costco doesn't exactly have a direct competitor, but Walmart (NASDAQ:WMT) is its closest peer. Not only does Walmart own Sam's Club, but it also makes the majority of its revenue from groceries like Costco, and the two companies are among a small group of national, multi-category retailers, including Target and Amazon.
Walmart has done much to reinvent itself over the last decade, and it's paid off. It's become the #2 e-commerce business behind Amazon, with a network of pick-up kiosks, and it's attracted more higher-income consumers, shedding its perception of a discount retailer while maintaining its commitment to everyday low prices.
However, its upswing seems to have hit a roadblock in the second quarter, as comparable sales growth fell to its slowest pace in six years, at 2.6%. Adjusting for new federal drug-price-capping rules that weighed on pharmacy revenue, comparable sales were up 3.4%. Walmart noted that rising gas prices were squeezing household budgets, and shoppers had cut back on discretionary goods.
Still, that's only half the comparable sales growth that Costco just generated, showing its resilience in a challenging time for retailers. Costco has the advantage of catering to mostly higher-income customers who are less sensitive to inflation, especially at a time when the stock market is at an all-time high, and Costco continues to deliver value for its members.
Costco earns its premium
Costco is one of the most expensive retail stocks on the market, even as it is down 5% over the last year. At a price-to-earnings ratio of 43, it's even more expensive than Amazon. By comparison, Walmart trades at a P/E of 39.
While Walmart's reinvention in recent years remains commendable, Costco is the better buy here. It has the most resilient business model in brick-and-mortar retail, and it's one of the few retailers still opening new stores. Costco doesn't even have 1,000 stores around the world, indicating it has plenty of runway, especially as it's proven to be popular in countries like Canada and China.
After growing through both the pandemic and the post-pandemic era, Costco continues to deliver strong results even as other retailers struggle with inflation.
It may take more time for Costco to grow into its valuation, but the stock continues to look like a long-term winner.
Jeremy Bowman has positions in Amazon and Target. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.