How Costco is clobbering Wal-Mart and Target

The warehouse retailer's latest quarterly earnings exceed estimates as same-store sales jump 5%. Its big-box competitors can't say the same.

By Jonathan Berr Mar 12, 2013 10:31AM
A Costco employee cooks chicken at Costco in Mountain View, Calif. on March 2, 2010 (© Paul Sakuma/AP Photo)Shares of Costco Wholesale (COST) rose Tuesday after the warehouse retailer posted better-than-expected quarterly earnings at a time when rivals Wal-Mart (WMT) and Target (TGT) continue to stagnate.

Net income at the Issaquah, Wash., company rose 39% to $547 million, or $1.24 per share, versus $394 million, or 90 cents per share, a year earlier. Sales increased, and the company had a tax benefit from a dividend it paid to its 401k plan. Revenue surged 8% to $24.34 billion. Analysts surveyed by Thomson Reuters expected a profit of $1.06 per share on revenue of $25.03 billion.

Excluding gasoline sales, Costco reported that same-store sales gained 5%. This key metric of sales at stores open for at least a year beat the most recent quarterly performance of Wal-Mart's U.S. locations and Target stores. The former rose 1.2%, while the latter managed just an uptick of 0.4%, Bloomberg News noted. Costco continues to attract new customers, as evidenced by the 15% gain in membership revenue.

Several factors account for Costco's strong performance. First, it delivers value for its members. For instance, prices for perishable products such as fruit are much better at Costco than at traditional supermarkets. Costco also offers a mind-blowing array of services such as travel deals, assistance in purchasing cars and, yes, even caskets. The company's Kirkland private-label products also are rarely disappointing.

Costco attracts individual consumers along with small businesses, such as mom-and-pop restaurants, looking for supplies. And it's not just for folks on a budget. People feeling flush with cash go to Costco to buy jewelry and electronics such as big-screen TVs and computers. The chain has something for everyone.

Costco plans to open 14 new locations prior to the end of its fiscal year on Sept. 1. Of course, it's not immune to the challenges facing other retailers, such as rising merchandise costs -- which surged 8% in the last quarter to $21.8 billion.

Jonathan Berr doesn't own shares of the listed stocks. Follow him on Twitter @jdberr.

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Mar 12, 2013 11:20AM
90% of our shopping is done at Costco now, because of how they treat their employees and I know a lot of other people that do the same.
Mar 12, 2013 11:42AM
BUT other corps say this can't work unless they exploit there work force for profits HOW WRONG YOU ARE. GO COSTCO!
Mar 12, 2013 11:56AM
I shop at Costco as much as possible. They have the finest quality products in every category and they treat their employees with dignity and compensate each individual fairly! I will always support them!
Mar 12, 2013 12:26PM
I love Costco. They treat their employees like human beings. You can see it in their faces. Unlike Walmart and Target which are basically slave havens.
Mar 12, 2013 12:36PM
Costco is awesome, pay there workforce well.... makes wal mart look like a slave labor camp!
Mar 12, 2013 1:29PM
I'm going to vote with my money for a company that 

1- offers good products at great prices
2- pays its employees above market rates, provides health insurance and treats them with dignity and equality
3- pays its executives at levels far below the market.  2 & 3 go hand in hand and show where a company's priorities are.

As if it wasn't bad enough that Walmart's business model is bad for America and the company is rife with various forms of discrimination, once in a while they're subject to immigration sweeps because they hire illegals so they can pay them even below minimum wage by making them put in free hours of work.  The day Walmart and companies like it go out of business is a bright day for the future of America.
Mar 12, 2013 12:13PM
The employees in the electronics department at my Canyon Country Costco are more knowledgeable and helpful than those at Sam's Club, Wal-Mart or Best Buy.   
Mar 12, 2013 1:02PM
Where else can you get a giant hot dog with (unlimited refills) soda for $1.50?  And I think the Kirkland hot dog is just as tasty as any available these days, if not better.  Even comes with free sauerkraut--is this a great country, or what?  And their rotisserie chicken is to die for--we get 2 meals out of one, for less than 5 bucks.
I have noticed Costco employees far exceed employees at any Walmart. Follks at Walmart are the laziest on earth...
Mar 12, 2013 12:54PM
Wonderful story anytime anyone can shove it up wallyworlds **** I will celebrate, worst company on the planet.
Mar 12, 2013 1:25PM
They pay their people higher wages than Target and Walmart. Sort of shoots down all the negativity about raising the minimum wage. You get what you pay for.
Mar 12, 2013 1:28PM
Maybe Wal-Mart and Target could learn something from Costco-----pay their employees and living wagr and health insurance......
Mar 12, 2013 1:11PM
I've been to both Costco and Walmart's Sam's Club.  I've always been impressed by Costco's operation.  Not so with Sam's Club.
Mar 12, 2013 1:18PM
I often shop around for the better prices (for instance food at WINCO).and I occasionally shop at WALMART. I did buy my last two mattresses at COSTCO and it feels good to support a company that treats it's employees well. I consider my membership fee my vote for better wages and working conditions.
Mar 12, 2013 2:19PM
We had been asked to upgrade our membership for cash back because we spend enough yearly to get back the extra member fee. Lo and behold at the one year anniversary we got a check for over $200.00. About $75.00 over the member fee. GO Costco. Ever notice how courteous the employees are? Big smiles, let me help you, is there anything you did not find, Thank you for shopping with us and most importantly returns are accepted without the third degree.
Mar 12, 2013 1:24PM

This is the best box store,EVER...Their employees are paid a livable wage..That other box store Wally World, has over-saturated this country for so many years is now feeling the downward spiral of paying employees slave wages versus COSTCO, who cares about their employees and customers,and if you have the money,they have anything you need or want...

Mar 12, 2013 1:11PM
I use some of the "Kirkland" brand products.  One of them, Coffee, is a bit higher in price but the fine grind makes a can go much farther and with a richer taste.  One or twice a month for me.  I will not buy beef or pork ribs anywhere else.  I find the employees very friendly and helpful.  Even bought a set of tires.  Keep up the good work Costco, Lake Elsinore.
Mar 12, 2013 2:16PM
When was the last time you heard immigration sweeps at Costco....?
Mar 12, 2013 1:40PM
I would like to know why my city of roughly 90,000 is already saddled with three Walmart stores, two are super  stores. My nearest Costco is in east El Paso,about an hour or more away from Las Cruces, NM. Who pocketed the payoff?
Mar 12, 2013 11:59AM

the 5% increase in same store income may also be due to the fact that many of the products have seen a double digit  percentage increase in prices and in some cases a 100% increase.


I have been tracking the prices of the essentials that have been purchaing at Costco for over 12 years now and have recently started to notice a random increase in prices on the same product.


The Kirkland brand is comparable and in most cases bests the brandname products; but I am now noticing that the pricing between brandname products and Kirkland Products are almost the same and in some cases the brand names may be available at a lesser price due to a coupon.


Talking of Coupons... A few years ago when Costco sent us the coupon books, we had to clip the coupons to get the discounts; then costco started a practice of scaning just one coupon and other coupons were automatically applied; later they implemented a policy of just sending coupons but not requiring it with discounts applied automatically. This month when I received my coupon book, I noticed that the first few pages had coupons that required no clipping; and the remaining coupons had to be presented to get the discounts.


Costco traditionally was know for its employee work ethic, service and smiling employees; now a days they seem to be over worked, grumpy and not willing to help. Even their displays are useless; they display really great cameras that don't work so you have to buy it first, take it home to try it and then come back to the warehouse to return because there is no way to play with it before you buy; of course you can ask an employee who will shrug and will say "Sorry" before you can complete your sentence.


Of course- I still go to costco but I have been buying lesser every month for the last couple of years; but I have been finding random good deals closer to home at the "Big Box stores" and the friendly Internet stores and Amazon.


I no longer trust the pricing at Costco; I do my research before I buy.


Soon Costco's members will notice this and it will have to compete for business.


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