In the retail sector, the competition has becoming increasingly fierce.
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New York, NY (PRWEB) November 08, 2012
In a recent Profit Confidential article, contributor and financial expert Sasha Cekerevac reports that Costco recently released its fourth-quarter and fiscal 2012 results, announcing that the company increased its corporate earnings for both the fourth quarter and fiscal year by more than 20% year-over-year. (Source: “Costco Wholesale Corporation Reports Fourth Quarter and Fiscal Year 2012 Operating Results,” Costco Wholesale Corporation, October 10, 2012.) According to Cekerevac, Costco is a company within the retail sector that is seeing growth, even in a weak economy.
“In the retail sector, the competition has becoming increasingly fierce,” says Cekerevac. “The growth of online shopping has meant that many firms in the traditional retail sector have suffered. With margin compression, corporate earnings have been hit across the board.”
However, he notes that Costco’s latest earnings release suggests that the company has created a very profitable niche within the retail sector.
In the article “Is Costco a Buy Following the Latest Pullback?,” Cekerevac states that Costco’s innovative business strategy is to sell products at such a low price that people are willing to pay for a membership to join just to save.
According to the Profit Confidential expert, Costco’s growth in revenue stems from this business model, which has extensive appeal to the average consumer.
For the fourth quarter, the company reported sales of $31.5 billion, a 14% increase from the prior year’s quarter, reports Cekerevac. He also notes that for the entire year, the company reported revenue of $97.0 billion, a 12% increase for the 2011 fiscal year. (Source: “Costco Wholesale Corporation Reports Fourth Quarter and Fiscal Year 2012 Operating Results,” Costco Wholesale Corporation, October 10, 2012.)
Cekerevac reasons that “Offering goods at such a low profit margin is enticing people to pay for their memberships, from which the company derives a lot of corporate earnings. This also differentiates them from other online retailers that only generate corporate earnings from the low profit margins without any membership fees.”
Citing the company’s press release, Cekerevac reports that Costco’s corporate earnings for the fourth quarter were $609 million, a big increase of 27% from the $478 million during the same quarter last year. He adds that for the entire year, corporate earnings for Costco were $1.7 billion, an increase of 21% from $1.4 billion in 2011. (Source: “Costco Wholesale Corporation Reports Fourth Quarter and Fiscal Year 2012 Operating Results,” Costco Wholesale Corporation, October 10, 2012.)
“With corporate earnings expected to continue to grow for an extended period of time, the question is not regarding the validity of [Costco’s] business model but rather where the favorable entry points are for accumulating the stock,” concludes Cekerevac.
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