Your business must remain relevant!
Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Reuters in an article — by Granth Vanaik, “Costco misses quarterly revenue estimates as demand slows for discretionary goods” — regarding Costco’s just released fiscal second quarter revenues and earnings.
The article was also picked up by European Supermarket Magazine, U.S. News & World Report, Zhitong Finance, JRJ, and Sina (China), Fox Business, Yahoo!news, StreetInsider, SaltWire (Canada), MSN, Nouvelles Du Monde (France), EconomicTimes/IndiaTimes, and Kalkin Media (Australia), amongst others.
Is it hip to be square?
Costco’s fiscal second quarter earnings per share beat expectations yet revenues missed, indicating that sales growth possibly hasn’t kept pace with inflation and consumer traffic, but that management has expertly held elevated labor and supply-chain costs in check.
Following the post-pandemic pattern we’ve seen in previous quarters, with people spending less time at home and home sales slowing to a snail’s pace, consumable categories like food and sundries outperformed more discretionary products and inflation continued to weigh on consumer purchases. The concern is that the year-end holiday shopping sales boost is not a true indicator of momentum in 2023, but with employment numbers still strong and incomes increasing, Costco sales and consistent value proposition have runway.
Nonetheless, management also disappointed expectations because many analysts had expected discussion of a membership fee hike since the last hike was in June of 2017 and management tends to raise membership rates every 5 to 6 years.
Yes, as long as you remain relevant!
Big picture, Costco has been a terrific stock with enviable performance over the last five and ten years, although its one-year performance is negative. Membership renewal rates were solid in 2022 as was the proportion of higher-tier Executive members who shop more frequently and spend more than regular members.
However, in a world where many people form families later, live in smaller spaces, and eschew automobile ownership, Costco needs to remain relevant, hip, and accessible—this can be challenging for a bulk retailer that depends on its customers to be their own last mile delivery—that is why Costco’s new potential ground-floor retail tenant lease at the site of an 800 unit multifamily development complex in the Baldwin Hills neighborhood of south Los Angeles is so interesting and could be a indicator of future expansion and experimentation.
Quoted article excerpt is below:
The membership-only retail chain’s mixed quarterly results “indicates that sales growth possibly hasn’t kept pace with inflation and consumer traffic,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
In French: Les résultats trimestriels mitigés de la chaîne de vente au détail réservée aux membres “indiquent que la croissance des ventes n’a peut-être pas suivi le rythme de l’inflation et du trafic des consommateurs”, a déclaré Michael Ashley Schulman, directeur des investissements chez Running Point Capital Advisors.
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-18