4. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Investors In Q1 2024: 65
Costco Wholesale Corporation (NASDAQ:COST) is one of the biggest discount retailers in America. It is a well established business with a sizeable presence in the market. Unlike other retailers, Costco Wholesale Corporation (NASDAQ:COST)’s loyalty programs that not only provide discounts for products sold in its stores but also other services means that the firm has a robust and loyal customer base. This entrenched loyalty is quite important in today’s retail industry, particularly when we analyze the rise of PDD Holding’s Pinduoduo in China which has grown and prospered despite a slow economy due to a unique customer loyalty proposition that offers them a chance to bargain in numbers. Why is it important? Well, should Costco Wholesale Corporation (NASDAQ:COST) pursue similar loyalty initiatives in China and other countries, then it could rapidly grow its global market share as well.
Costco Wholesale Corporation (NASDAQ:COST)’s quarterly results in May also saw it report a 7% revenue growth for the first 39 weeks of the year to $186 billion. This growth came as inflation continued to remain a problem for consumers, and it highlighted the strong performance of the firm’s business model. However, during the call, the management shared details about a mixed margin performance, as while some margins grew, others dropped:
Core was flat and higher by 2 basis points without gas inflation. In terms of core margin on their own sales, our core-on-core margins were higher by 10 basis points. Ancillary and other businesses gross margin was lower 6 basis points and lower 5 basis points excluding gas inflation. This decrease year-over-year was driven by gas, partially offset by e-commerce. 2% reward was lower by 1 basis point, both with and without gas inflation with higher sales penetration coming from our executive members. LIFO was a benefit of 2 basis points. We had an $11 million LIFO credit in Q3 this year compared to no LIFO charge or credit in Q3 last year. This is the third LIFO credit this year following a $15 million LIFO credit in Q1 and a $14 million credit in Q2.
And finally, other was higher 57 basis points or 56 basis points excluding gas inflation. This was all related to lapping last year’s negative impact from the $298 million pre-tax charge for charter shipping activities. Moving on to SG&A. Our reported SG&A rate in the third quarter was lower or better year-over-year by 15 basis points, coming in this year at 8.96% compared to last year’s 9.11%. SG&A was lower year-over-year by 12 basis points adjusted for gas inflation. The operations components of SG&A was lower by 14 basis points and lower by 12 basis points, excluding the impact from gas inflation, despite an increase in warehouse wages this year. Higher labor productivity and great cost discipline by our operators drove the improved core SG&A results for the quarter.
