What Is Costco’s Revenue and Cash Profit Breakdown?

by Trefis Team
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Trefis
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Costco
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Costco (NASDAQ:COST) saw its stock price increase by nearly 10% over the course of 2018. Much of that increase was due to the company’s strong comparable sales growth in the U.S., as well as international markets. We have a $238 price estimate for Costco, which is almost 15% ahead of the current market price. We have created an interactive dashboard on Costco’s Revenue and Cash Profits breakdown, which details our forecasts for the company’s revenue and cash profits in the calendar year (CY) 2019. You can modify our assumptions to see the impact any changes would have on the company’s earnings and valuation. We expect Costco to generate around $149 billion in revenues in CY 2019. Of the total expected revenues in CY 2019, we estimate $85 billion in the Costco U.S. business, almost $35 billion for the Costco International business, nearly $26 billion for the Ancillary businesses, and close to $3.3 billion in Membership income.

Breakdown By Division

Costco’s domestic business constitutes 45% of the Trefis price estimate for Costco’s stock. It is the most valuable segment for the company, contributing more than half of total sales. The retailer continues to benefit from the positive momentum of its comparable sales in the U.S. In its recent earnings, the company posted a 9% increase in comparable sales.

In addition, Costco’s organic performance has been keeping pace with the U.S. retail industry. This is primarily due to its business model. The company relies heavily on its membership fees, despite the fact that these fees account for only 3% of total revenues. The company’s membership fees contribute around 17% of its value, per our estimates, given the low costs associated with this revenue stream. Like other large retailers, Costco makes small margins on most of its items in its stores, while membership fees help offset these low margins. Paid memberships at Costco have grown at a CAGR (compounded annual growth rate) of 4% over the past two years to 51.6 million in fiscal 2018. Going forward, we forecast the company’s revenue from membership fees to reach $3.3 billion in CY 2019.

Costco operates in ten international markets. The retailer boasts more than 10 million members in Canada with a renewal rate of 90%, which helps the company earn significantly through its membership fees alone. Costco operates 100 stores in Canada (as of Sept. 2018), which is the greatest number of stores in any market outside the U.S., with impressive 5% comparable sales growth. We expect the sales from the Canadian market to boost the company’s international revenues in 2019 as well.

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