Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Costco Makes Money but is it Amazon Proof?

The numbers prove Costco makes money but is America’s favorite store Amazon proof?

Costco Wholesale (NASDAQ: COST) just completed a great 1st Quarter 2019. For instance, Costco records 1st Quarter revenues of $35.396 billion and a gross profit of $4.676 billion. In addition, Costco reports an operating income of $1.203 billion and a net income of $889 million.

In fact, Costco’s annual revenues rose to $141.576 billion on February 9, 2019. Consequently, Costco is America’s fourth largest retailer in terms of revenue volume.

In detail, Walmart (NYSE: WMT) is the biggest with revenues of $514.405 billion in 1st Quarter 2019. Amazon (NASDAQ: AMZN) takes second place with revenues of $232.887 billion. Meanwhile, pharmacy and health insurer CVS Health Corp (NYSE: CVS) is three with $194.579 billion in revenue.

Is Costco Amazon Proof?

Kantar Consulting names Costco Wholesale as America’s fourth largest retailer with 510 stores and $93.08 billion in retail sales for 2018.

Surprisingly, Costco is one of our fastest growing retailers with a revenue growth rate of 9.73% for 2018. In addition, Costco had a 7.28% revenue growth rate in 1st Quarter 2019.

In contrast Walmart has a 1.85% revenue growth rate for 1st Quarter 2019. Plus, Stockrow gives Walmart a 2.81% revenue growth rate for 2018.

On the other hand, Amazon achieved a 30.93% revenue growth rate for 2018. Moreover, Amazon had a 19.73% revenue growth rate in 4th Quarter 2018.

Amazon Threatens Costco and Everybody Else

Amazon’s growth rate is a threat to Costco because of the Everything Store’s size.

In fact, just five years ago in December 2014, Amazon’s revenues were less than $100 billion. To be exact, Amazon annual recorded revenues of $88.988 billion for 2014. Astonishingly those revenues grew to over $200 billion in under five years.

In comparison, Costco’s revenues exceeded Amazon’s in 2014. To explain, Costco recorded revenues of $112.648 billion in 2014. So it was clearly bigger than Amazon five years ago. Now, Amazon is larger than Costco.

Amazon Prime is the largest Club Store in America

To add to Costco’s woes, Amazon Prime is now the largest “club store” in America. To clarify, Amazon’s membership service had 101 million members in January 2019, Consumer Intelligence Research Partners estimates.

Therefore, nearly one in three Americas could be an Amazon Prime member. To enumerate, the United States had a population of 328.31 million people on New Year’s 2019, the US Census Bureau estimates.

In contrast, Costco had 94.3 million members worldwide in 4th Quarter 2018, Statista calculates. Plus, Amazon added six million Prime members in 2018, Internet Retailer claims.

In contrast, Costco had 94.3 million members worldwide in 4th Quarter 2018, Statista calculates. Plus, Amazon added six million Prime members in 2018, Internet Retailer claims.

Therefore, Amazon is beating Costco at its own game by selling more memberships. In fact, Consumer Intelligence Partners theorizes that eight out of 10 American households have an Amazon Prime membership.

How Amazon Prime Threatens Costco

Amazon Prime threatens Costco because it is more convenient and easier to use.

For instance, nobody needs to drive to a giant store, or push a huge cart full of merchandise around, with Amazon Prime. Instead, you shop from your couch and receive the merchandise at your door.

In addition, Amazon is expanding Prime and making it more convenient. Specifically, Prime Fresh ships groceries to your door in several US cities.

Hence, consumers have one less reason to spend $60 to $120 a month for a Costco membership. Prime offers everything Amazon does and streaming video for around $110 a year.

How Instacart and Kroger Threaten Costco

Nor is it just Amazon Prime, Costco needs to worry about, Instacart claims its grocery delivery and pickup services are available in dozens of cities across the US, The Verge reports.

Furthermore, Instacart is competing directly with Costco by offering delivery of Staples office supplies in Canada, Supermarket News reports. This is problematic because office supplies isone of Costco’s main product categories.

Finally, there is America’s largest supermarket operator Kroger (NYSE: KR) with 5,328 stores. Kroger, which records revenues of $121.162 billion is Instacart’s biggest partner.

Kroger planned to offer delivery from over 1,300 stores and pickup from 1,091 stores by the end of 2018, Supermarket News reports. In addition, Kroger is enhancing its logistics game by building robotic fulfillment centers with the help of Britain’s Ocado Group PLC (LSE: OCDO).

Under these circumstances, Instacart is now one of Costco’s biggest and most dangerous competitors. In addition, Kroger could soon be as big as a threat to Costco as Amazon or Instacart.

How Much Money is Costco Making?

Despite the threats Costco still makes a lot of money. However, Costco is having some problems.

Notably, Costco records a negative operating cash flow of -$219 million, and a free cash flow of -$806 million for 1st Quarter 2019. Hence, Costco is experiencing a negative cash flow.

However, Costco had $6.08 billion in cash and equivalents, and $1.042 billion in short-term investments on February 17, 2019. Consequently, Costco had $7.122 billion in cash on that date.

That’s good for a retailer but it pales before the $41.250 billion in cash and short term-investments Amazon reported on 31 December 2019. Thus, Amazon’s cash is four times that of Costco’s.

Is Costco a Good Investment?

In the final analysis, Costco is a profitable and fast-growing moneymaker I consider a good investment.

In particular, Costco investors received a 57₵ dividend on 22 February 2019. In addition, that dividend grew by seven cents in 2018. Specifically, the dividend rose from 50₵ on 2 March 2018 to 57₵ on 25 May 2018.

Moreover, Costco offers shareholders 15 years of dividend growth, reports. In addition, Costco offered a dividend yield of 0.93%, an annualized payout of $2.28, and a payout ratio of 33.5% on 17 April 2019.

However, I consider Costco Wholesale (NASDAQ: COST) overpriced at the $245.81 share price reported on 19 April 2019. Thus, I think Costco is a good stock that will reward investors despite the retail disruption. However, I advise invests to wait until Costco’s share price falls to buy it.