Costco Stock At Wholesale Prices - InvestingChannel

Costco Stock At Wholesale Prices

Proprietary Data Insights

Top Discount Store Stock Searches This Month

#4Dollar Tree18,664
#5Dollar General11,786

So Costco (COST) pretty much crushes earnings – again – and the stock tanks. 

What gives? The Juice gets to that in a minute, but first… 

This economy continues to intrigue us. Particularly the impact of inflation on the consumer. 

After Costco’s earnings last week and Dollar General (DG) and Dollar Tree’s (DLTR) late last month, let’s dive into each company’s conference call to pull some nuggets. 

Our takeaway: Don’t judge this economy by what you think makes sense. 

While The Juice still believes we’re running in a dichotomous economy of haves and have nots, Dollar General and Dollar Tree threw a small wrench into this thesis. 

They Make $100,000, But Shop At A Dollar Store

Yes, it’s true. 

First, from Dollar Tree’s call, this tidbit: 

We see third-party data that we do have a lot of new customers coming into both banners over last year. And the majority of them are at a household income of $80,000 or higher We also see a huge shift from cash into credit, which tells us the customer is pressured.

So, a higher-end consumer is hitting up Dollar Tree and Family Dollar stores (DLTR owns both). Interesting.

And DLTR consumers are increasingly relying on credit cards to pay. This prompts concern over the consumer debt bubble we warned might be brewing. We’ll update this story as the government releases the latest data on debt and savings over the next couple weeks. 

But back to the higher end consumer shopping at dollar stores. Dollar Tree didn’t provide much color beyond that blurb. However, Dollar General did, after indicating it’s seeing a similar trend.

Because the Dollar General CEO sort of rambled during this part of the call, we’ll summarize what he had to say: 

  • Higher-end consumers making up to $100,000 are trading down to less expensive necessities, particularly consumables. Similar to the low-income cohort. 
  • However, this consumer starts from a baseline of more money to spend so this trading down actually frees up cash to drop on discretionary items. 
  • For example, Dollar Tree’s fall and Halloween products sales are “doing extremely well,” thanks in part to this relatively affluent shopper. 

On the lower end of the income spectrum at DG:

…our core customer has been buying more private brands, that $1 price point, very, very important to her. If you think about things that have accelerated greatly over the last quarter, if you think of basic proteins that our core customer needs, so what we’ve seen is 15% to 20% increases over the last couple of quarters in canned meat, seafood, dry pasta, soups, rice and beans. So those core proteins, eggs, all those things that the consumer needs to feed her family but can do it at a much-reduced price.

Super interesting

Makes The Juice think you should continue to look hard at DG and DLTR stock as long-term investments. As the chart we’ll show you in a second reveals, both stocks have outperformed even Costco over the last year. 

They’re superserving their core low-income consumers, but hoping and, in Dollar General’s case, expecting to retain wealthier consumers coming through the door thanks to inflation.

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This Stock Is A Screaming Buy

Key Takeaways:

  • Costco reported strong earnings. 
  • However, its stock tanked on the news. 
  • The Juice thinks investor concerns are overblown. 



Costco stock is flat over the last year. 

If you liked the stock at around $487 in early June (we did), we think you should love it even more after the haircut it suffered prior to and after its earnings report. 

  • Costco’s revenue of $72.09 billion beat estimates by a sliver. 
  • EPS of $4.20 topped expectations by $0.03. 
  • For its fiscal full year, sales surpassed $200 billion for the first time ever at $222.73 billion, up 16% year-over-year. 
  • 44% of Costco members pay for its $120 executive membership (as opposed to the standard $60 membership). Also a record. 

So what scared investors? 

Two things: 

  • One, Costco tends to increase the cost of its membership every five years or so. It’s that time again, but the company didn’t make the move. 
  • Two, merchandise costs increased, making Costco’s margins tighter. 

Of course, an increase in the cost of a membership could ease margin pressure. As Costco’s CEO noted on the call, it’s doing a little dance here: 

And given the headline of inflation and concerns about recession, we feel quite comfortable driving sales and earnings the way we are right now, and we still have that arrow in our quiver as we go forward.

Sounds like Costco is letting the overall strength of its business as well as gas sales drive margins for the moment. At some point, if need be, it can go to that membership increase for increased breathing room. 



The Bottom Line: Warranted or not, investors sold off Costco stock last week on what was an overall solid earnings report, especially in this environment. If you’re a long-term investor, this could present a screaming buy opportunity. 

Because Costco appears to have a handle on the margin situation going forward. Plus, its consumer isn’t showing signs of weakness. Just the opposite. 

Consider this from the call:

Many of you have asked about private label with the recent inflationary environment and what’s happening, are people trading down. And of course, our first response, of course, is they’re not trading down. They’re trading up or certainly trading the same.

In an environment where most discount and grocery stores are seeing private label sales and trading down to less expensive items increase alongside less discretionary spending and a focus on buying consumables, Costco isn’t dealing with this relatively weak consumer behavior. 

Just the opposite. 

And Costco has that membership fee increase locked and loaded. 


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