Costco’s Top Line To Grow By 6% in FY 2019

by Trefis Team
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Costco (NASDAQ: COST), whose stock is currently trading at around $290, generates its revenue primarily from its US segment which is projected to account for 57% of total revenues in 2019, while the International segment is expected to be the 2nd highest contributor to the top line at 22.9%. In this note we discuss the revenue segments of Costco, their historical performance, and expected Total Revenue for 2019. You can look at our interactive dashboard analysis ~ Costco Revenue: How does Costco make money? ~ for more details. In addition, here is more Multiline Retail data.

 

Costco Business Model:

What Does Costco offer?

  • Costco operates membership warehouses based on the concept that offering the members low prices on a limited selection of nationally branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover.
  • When combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover should enable them to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers.

Has 4 Operating Segments:

  • Costco U.S. Revenues: Costco US offers bulk display of a variety of merchandise discounted heavily and includes limited selection of both nationally branded and private-label branded goods. It charges its members an annual membership fee to give them an opportunity to buy these goods.
  • Costco International Revenues: Similar to Costco US, Costco International offers bulk display of a variety of merchandise discounted heavily and includes a limited selection of both nationally branded and selected private-label branded goods. It charges its members an annual membership fee to give them an opportunity to buy these goods.
  • Ancillary Business Revenues: Costco, besides selling core merchandise, also offers expanded products and services that encourage its customers to shop more frequently. These businesses include gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers.
  • Membership Fee: Membership fee is an annual fee charged by Costco to its members to give them worldwide access to a wide variety of merchandise. Gold Star memberships are available to individuals; Business memberships are limited to businesses, including individuals with a business license, retail sales license or comparable evidence.

What Are The Alternatives?

  • Major competitors are companies like Best Buy, Bed Bath & Beyond, Target, and Walmart.

What Is The Basis of Competition?

  • Retailers and warehouse club operators compete in a variety of ways, including merchandise pricing, selection and availability, services, location, convenience, store hours, and the attractiveness and ease of use of websites and mobile applications. The evolution of retailing in online and mobile channels has improved the ability of customers to comparison shop with digital devices, which has enhanced competition.

 

Revenue growth of about $22.9 billion over two years driven primarily by Costco US

  • Total Revenue has seen a good positive growth over the recent years. It grew from $118.7 billion in FY 2016 to $141.6 billion in FY 2018. Trefis estimates revenue to be $150.5 billion for FY 2019 (ended August 2019).
  • Costco US is the highest contributor to Total revenues and has a good growth over recent years. It grew from $72 billion in FY 2016 to $81.7 billion in FY 2018. Trefis estimates revenue to be $85.8 billion for FY 2019 (ended August 2019).
  • Revenue from Costco International has seen a steady growth over recent years. It grew from $26.7 billion in FY 2016 to $31.8 billion in FY 2018. Trefis estimates revenue to be $34.4 billion for FY 2019 (ended August 2019).
  • Ancillary Business revenue has seen high growth over recent years. It grew from $17.4 billion in FY 2016 to $24.9 billion in FY 2018. Trefis estimates revenue to be $27 billion for FY 2019 (ended August 2019).
  • Revenue from Membership fees has seen a steady growth over the years. It grew from $2.6 billion in FY 2016 to $3.1 billion in FY 2018. Trefis estimates revenue to be $3.3 billion for FY 2019 (ended August 2019).

 

 

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