Costco Must Do More to Battle Amazon – Wall Street Journal
The warehouse retailerâ€™s shares are essentially unchanged over the past 18 months, its longest period of stagnation since the financial crisis. Lackluster sales growth, slowing foot traffic and a late-to-the-game push into e-commerce have hurt results.
More of the same is expectedÂ ThursdayÂ when Costco reports fiscal fourth-quarter results. Analysts expect earnings of $1.73 a share, matching the year-earlier figure. Revenue is expected to have increased 3%.
Business at the worldâ€™s second-largest retailer by revenue behind Wal-Mart Stores Inc.
has been hurt by falling food prices and rising competition. Costcoâ€™s same-store sales were flat in the 16 weeks ended Aug. 30 compared with a year earlier, missing analystsâ€™ expectations.
Perhaps Costcoâ€™s biggest concern now is Amazon.com Inc.
The online behemothâ€™s annual revenue is expected to surpass Costcoâ€™s for the first time this year. By comparison, Amazon had less than half of Costcoâ€™s annual revenue six years ago.
Over the past five years, Costcoâ€™s shares have trailed Amazonâ€™s, while outperforming Wal-Mart. The contrast has only grown starker over the past 18 months as Costcoâ€™s stock has treaded water while Amazonâ€™s has more than doubled.
Granted, one big difference between Costco and Amazon is profitability. Even with five consecutive quarters in the black, Amazon lags far behind.
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Costcoâ€™s competitive edge lies in limited product selection, loyal customers and fee income. Its roughly 81 million card holders spent around $2.5 billion in membership fees in fiscal 2015, comprising the bulk of Costcoâ€™s $3.6 billion in operating income.
But Costco is arguably paying more now than ever for that growth. Capital expenditures rose to $2.4 billion in fiscal 2015, more than double their level six years earlier.Â Meanwhile, same-store sales growth has slowed for four years in a row.
While Costco is still attracting new members, growth in fee revenue decelerated to 4.3% in fiscal 2015, the least since 2009, as exchange rates weighed and past fee-increases faded.
Investors might find a better price elsewhere.
Write to Steven Russolillo at email@example.com
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