Why Costco benefits from higher gas prices
The company prices its own gas lower in hopes it will increase shoppers' visits to its stores.
But Costco (COST) is one of the few retailers that do better as gas prices rise, writes analyst Mark Miller at William Blair & Co.
"With the typical seasonal uplift in gas prices leading up to Memorial Day, and with uncertainties in the Middle East, we now believe that gas prices should be a neutral, or potential positive, factor to Costco's sales going forward," Miller writes in a report Monday. He raised his rating on the stock to "outperform" from "market perform."
Costco shares traded up more than 1% Monday afternoon to $87.41. The stock is up more than 3% this year.
Costco benefits from higher gas prices because it sells its own gas at between 6 cents and 12 cents below the market price, according to Trefis. You can't buy gas there without a membership, and for some people it's a no-brainer to become a member just for the gas discount.
Let's say you have a car with a 17-gallon tank capacity. Filling up the tank completely at Costco might save you $1 to $2 each time -- probably enough to justify the $55 annual membership fee. And you get to buy enormous jars of pickles to boot.
Costco sells discounted gas on the expectation that it will lead to more visits and higher revenue in its stores. The company beat expectations last week for its second-quarter earnings, saying profit rose 13% while same-store sales increased. Shoppers spent 2.4% more per visit in the quarter, and visit frequency rose 5.2%.
Even after raising membership fees at the end of last year, Costco executives say the renewal trend is the best in the company's history, Miller writes after speaking with management. The company is aiming to increase first-year renewals and get new members to visit at least three times.
The real genius gets 3% back on that card they PAY OFF each month, for the usually better than average price of fuel... and also pays nothing for the Costco membership, by getting 2% cash back INSIDE (with the $110 membership), or the $ difference back (yes, I've earned $300 on my $100 membership). And I've been to most of America, with no need for any Costco.... but I sure do like their stock, and I do believe that's the common denominator -ahem- here on MONEY.MSN
not so here in cleveland area.costco stores only match price within 3 miles of store.,,many times I can get it cheaper.I think that since we pay a membership fee we should get it cheaper than any place else in the area or just boycot stores.Lets think about it!!!!!!
If you have your membership at Costco, You have the option to get your membership as a American Express account. There is no additional charge for this card.
But, make sure you get the American Express Rewards card.
You will get 3% rebate on your Gasoline purchases at any brand station that takes AMEX.
This discount also applies at the Costco stations. The rebate is payable annually by a Costco check. It can be cashed only at Costco for cash or towards your purchase.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The solid report comes a month after the retailer closed all of its Canadian operations.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.