Sure, WMT has a warehouse business, but that’s not what is driving its’ revenues or modest (I use this term loosely) growth. If you want to break out Sam’s Club from WMT’s numbers, then compare it to COST, that makes some sense, but just know that COST has a different type of consumer.
Same with TGT. I shop at TGT and I shop at COST. I’m not going to dump one for the other exclusively anytime soon and I don’t think any restaurants are headed to TGT for supplies in a pinch. Retail yes, competitors, not really.
COST is really a hybrid of a KR (who reported a nice quarter today) and a big box retailer like TGT with an added bonus of offering other premium products, including its’ Kirkland Signature brand, at a discount. The COST customer median income is over $100,000. Is this the same customer WMT is looking to attract? One author sited the cut in food stamps as one drag on retail as they reported on the COST quarter. I’m pretty sure COST doesn’t accept food stamps, nor do I believe a customer with a median income of $100,000 receives them.
The COST model is based on a membership fee, making up 75% of their revenues. They make very little money on actual product, though they do feel it when margins come in like they did this past quarter. TGT and WMT rely on QUANTITY of goods at low prices. Less shopping equates to less revenues, substantially. Meanwhile a COST customer can cut back a few items and not a whole lot is lost. Retail yes, competitors no.
What if AMZN cuts out COST? Listen, I like AMZN... A LOT, but I’m not ordering a half dozen avocados to be delivered by UPS from them. I’m just not going to do it. That goes for any bulk produce no matter what kind of “guarantee” anyone is willing to offer. COST also excels at offering specialty selections only available at its warehouses, customers know what I’m talking about. AMZN does not. People visit AMZN because they know they offer THE SAME products as everyone else, just at a lower price. We’ll see what happens to AMZN and the “effect” when it has to show an actual profit. Retail yes, competitors no.
BJ’s Wholesale, now a private company is really the only standalone competitor to COST. You don’t hear comparisons because they are no longer public and therefore don’t publish earnings making a comparison difficult to say the least. Suffice to say, COST is superior and would trade at a premium valuation. Consider that a single BJ’s location sold recently for $26.5 million. If you put that valuation on every COST location, you fall short of the current 50 billion market cap, by a lot, though you could own it for 2 1/2 SnapChats....a steal.
In the absence of a true “public” competitor, Wall St. reaches to compare COST to any large retailer. I think it’s a mistake, at least for now. The revenue models simply don’t match up nor do the customer bases in most cases, not to mention the goods. It’s a dangerous game to play.
If you want to compare them, don’t forget the 5% SSS for the recent month stripping out gas...WMT would literally MURDER someone for those comps, they might have in Mexico, we’ll never know....I kid, I kid.
I’m not even going to point out the loyalty COST employees have to their company or how well they are treated in a time when few companies follow suit. To be honest that has no value to shareholders. It only improves the shopping experience with clean stores and helpful customer service. That in turn creates equally loyal customers who are more likely to retain their membership (at well over 90% BTW). Did I mention memberships drive revenue? Hmmmm, maybe it does help shareholders, though SBUX and CMG treat employees well and you see what....wait a minute...I think you get the point.
Yes, I shop at COST. Does this taint my view on the stock. It could, though I don’t own it here and haven’t for some time. I admit the mid-20’s multiple is pricey, so I’m biding my time. But I may not wait much longer.
I’d visit COST more if there was a location closer than 40 minutes to me. There in lies their opportunity, at least one of them. A multiple of 23x doesn’t sound as high when you consider COST has 650 locations, while WMT has 11,000 and TGT 1,800. Why not compare that? On second thought, you better not.
Currently I have no positions in any of the stocks mentioned.