November's sales results show investors are again interested in Costco Wholesale Corporation's (COST) efficiency. However, the question of whether to purchase or hold Costco shares has now emerged after the most recent sales report.
Costco's Strength: Membership-based Business
Costco's membership-based business structure forms the foundation of its successful expansion. High affiliation retention rates give the business a steady stream of income, and its efficient supply chain oversight and large purchasing power allow it to provide competitive pricing. Thanks to a combination of operational effectiveness and customer loyalty, Costco is able to keep its advantage.
Costco consistently provides value with its membership-based business model, fostering resilient customer loyalty and ongoing revenue. Members must pay a yearly fee to gain permission to use Costco's storage facilities, where they can buy products at steep discounts. Membership fees provide the business with significant recurring income, and in important markets like the US and Canada, renewal rates surpass 90%.
One of Costco's main sources of revenue is membership fees. Thanks to these fees, the company is able to maintain earnings while keeping expenses down, safeguarding against pressures on margins from its affordable product offerings. Gold Star, Business, and Business add-on affiliations cost $65 a year, while Executive memberships cost $130. We observe that in fiscal year 2024, $4.83 billion came from membership fees.
COST Revenue Outlook
Comparable sales in the US increased 3.4% over the four weeks ending December 1, compared to 3.7% and 1.3% growth in Canada and Other Worldwide markets, respectively. Comparable sales for the entire company increased by 3.1%. This comes after increases in September and October of 6.7% and 5.1%, respectively.
However, after accounting for changes in foreign exchange rates and gas prices, Costco's comparable e-commerce sales decreased by 2.5% or 3.1%. Since Black Friday, Thanksgiving, and Cyber Monday fell a week afterwards this year than they did last, management reported that online sales were down by approximately 15 percentage points. This resulted in a roughly 1.5 percent decline in both total and equivalent sales.
Consequently, Costco's November net sales climbed 5.6% to $21.87 billion from $20.71 billion during the same period the previous year. This comes after sales increased by 9% and 7.2% in September and October, respectively.
