Costco’s membership model is a great success. It has brand-loyal customers, which can be gauged by the high membership renewal rate of 86.4%. Further, paying a membership fee works on a person’s psychology, and they intend to buy goods from Costco so as to derive value from their membership.
In the last five years Costco’s revenue has grown 7.9% and earnings surged 18.9% on a year-over-year basis. Analysts predict 13.5% growth per year during the next five years and revenue growth of 6.9% for the full year. The company is expanding well overseas, and has a lot of opportunity to increase its operations outside the U.S. Costco’s e-commerce business sales increased 20% in its last quarter on a comparative basis. The warehouse giant is a definite value addition to an investor’s portfolio.
Another specialty discounter’s earnings release
Unlike PriceSmart, Inc. (NASDAQ:PSMT), Family Dollar Stores, Inc. (NYSE:FDO)’ earnings, due to be released on July 9, are not being met with positive vibes. Year-to-date, the stock price has remained almost flat and, moreover, in the last year the company has missed analysts’ estimates three out of four times. To add to the misery, the company has been slashing its own guidance in the last two quarters.
The company is expected to post revenue of $2.57 billion, which, if achieved, would be a growth of 8.9% compared to the year-ago period. And on the bottom-line, analysts expect Family Dollar Stores, Inc. (NYSE:FDO) to report EPS of $1.03, which would be 3% lower than the same period last year.
Family Dollar’s gross margins have been falling, which has put the company in a difficult spot. The company has, no doubt, expanded its non-consumables sales but failed to sell higher-margin products to its customers. Although its revenue grew, an increase in sales of lower margin products is affecting its profitability.
Further, the company’s balance sheet is also in bad shape. It has an extremely low quick ratio of 0.30. Family Dollar Stores, Inc. (NYSE:FDO), as of March 2013, had $189 million in cash and cash equivalents, while its payables were over $1 billion. The company’s short-term debt has increased more than 10 times in the last nine months, suggesting that Family Dollar might be struggling to pay its short-term obligations.
Final words
PriceSmart, Inc. (NASDAQ:PSMT) has performed extremely well in the past couple of years, and going forward it gives its investors a positive outlook. I completely believe in the company’s potential to grow in the future, but that does not mean that the stock price will appreciate at the same pace. PriceSmart is a good investment for those who are willing to bet on the Latin American markets.
The article Earnings Preview: PriceSmart originally appeared on Fool.com and is written by tarun bachhawat.
tarun bachhawat has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST) and PriceSmart. The Motley Fool owns shares of Costco Wholesale. tarun is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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