Costco Wholesale Corporation has weathered all economic storms

Despite high sales, indicators of pricing pressures even at the warehouse retail behemoth indicate economic concerns.
 
HUNG HOM, Hong Kong - Nov. 8, 2022 - PRLog -- Wall Street has had a rough couple of weeks and the downward pressure on equities continued Friday morning. With investors across the world still grieving from the Federal Reserve's more obstinate focus on combating inflation at the expense of economic development, market indices have seen the bear market deteriorate. It was 9 a.m. ET, stock index futures on the Dow Jones Industrial Average (^DJI) the S&P 500 (^GSPC) and NASDAQ Composite (^IXIC) were down 1% to 1.5%, approaching levels experienced during June's strong bearishness.

Consumer activity accounts for a large portion of the U.S. economy and among merchants, Costco Wholesale Corporation (COST) has weathered all economic storms. The warehouse retail behemoth published financial results late Thursday that demonstrated its resilience but some of the difficulties that COST is facing have generated concerns about whether other firms would be able to endure the increasingly harsh retail industry and beyond circumstances.

COST shares were down nearly 2% in premarket trade, which was in line with the wider market's falls. On August 28, the corporation completed its fiscal year 2022 and its financial reports offered a mix of good news and indications of more challenging conditions ahead.

Overall, it's difficult for investors to bemoan COST's financial performance over the previous year. Revenue increased by 16% to $222.7 billion. Net income was $5.84 billion, up 17% year over year, with earnings of $13.14 per share. Even after normalizing for the impact of higher fuel costs on overall revenue, comparable store sales increased 10.6% throughout the firm, with 10.4% growth in both U.S. store and e-commerce sales.

However, according to COST's revenue statement, the company has had to pay higher prices for the commodities it sells. Merchandise expenses increased roughly 17% year on year, forcing gross margins to decline marginally. Given that COST currently operates on razor-thin margins, the warehouse retailer has limited room to become much leaner.

COST, on the other hand, is less vulnerable to margin challenges since it has a ready stream of high-margin income. The membership fees that COST charges its clients account for a sizable amount of the company's overall revenues.

Many have hypothesized that COST may raise membership rates soon, especially given that the firm hasn't raised membership fees in five years. Walmart-owned competitor Sam's Club recently announced a fee rise for its members, the first in nine years.

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