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Costco hits another record. 4 reasons to think the stock can keep going
Outgoing Costco CEO Craig Jelinek’s exit interview with Jim Cramer on Monday left us feeling even more confident about our investment in the wholesale retailer’s record-breaking stock. Costco hit another all-time high Monday — building further on a great fiscal 2024 first quarter . It’s gained nearly 50% in 2023 — more than double the S & P 500 ‘s 23% advance over the same period. Costco’s strong results in a difficult operating environment compelled us last week to hike our price target to $680 per share from $630. Shares closed above $681 on Monday, prompting us to reconsider where our PT should be moved to. COST YTD mountain COST stock performance year-to-date. “Let’s hold on to Costco,” Jim said. “I think it’s terrific.” He praised the $300 billion market cap retailer for its ability to offer great benefits for employees and a strong value proposition to members while consistently delivering strong profits. Jim touched on many important topics with Jelinek, including the company’s low prices, creating shareholder value, plans for expansion, and succession. Low prices Even as inflation cools, Costco wants to keep offering low prices. Jelinek said the way to maintain that balance is through “negotiating good deals” with the vendors. Part of that includes selling fewer brands of the same product, he added. The CEO also stressed Costco’s private-label Kirkland Signature brands as a “way of creating deflation in the marketplace,” because it forces name brands to compete on price. However, Costco has always used off-beat, big-ticket items to draw interest. This past quarter, it sold over $100 million worth of 1-ounce gold bars and a Babe Ruth autographed index card for $20,000. Shareholder value Another key reason we love Costco is that it takes care of shareholders. Last week, management announced shareholders will receive a special cash dividend of $15 per share. The company has typically offered this type of special dividend every few years or so. It’s the company’s fifth such payout over the past 11 years and 50% more than the one issued in 2020. The special dividend was one of two catalysts we’ve been waiting for and flagged as a possibility before earnings. The other is a potential membership fee hike, which could come sometime in 2024. “We do well for the company, we’re going to continue to reward our shareholders,” Jelinek said. He noted that the stock has performed considerably well since Costco went public in 1985 when it started trading at $10 per share. “We continue to generate a lot of cash. We don’t do a lot with our cash other than open up more Costcos and give it back to our shareholders.” He added, “That’s the way we run our business and to the extent we can reward our shareholders, we will continue to do so.” Growth plans Costco currently operates 871 warehouses, with 600 of those locations in 46 states, Washington, D.C., and Puerto Rico; 108 in Canada; and 40 in Mexico. There are dozens more in Europe, Asia, and Australia. Still, as Jim Cramer pointed out Monday, the wholesaler is “barely anywhere in international,” which gives it a huge opportunity to expand in underdeveloped markets. During the interview, Jelinek agreed — saying he sees growth potential in the United States and beyond. “We’ve been successful in every country that we’ve done business in, and we feel that we will continue to do so. To the extent that we can do business in other countries, we will continue to grow our international business.” In its fiscal first quarter, Costco reported $56.72 billion in net sales, which excludes membership revenue of nearly $1.1 billion. Excluding gas price and currency fluctuations, U.S. adjusted same-store sales grew 2.6% year-over-year, Canada increased 8.2%, and international gained 7.1%. This outperformance shows shareholders like us that “the growth path is far greater than if you were just a domestic retailer,” Jim said. During its post-earnings call, management said it plans to open 33 warehouse locations throughout fiscal 2024 in the U.S. and abroad. Succession Jelinek, who has been with the company since 1984, will be stepping down as CEO in January 2024. After 11 years at the helm, he will be passing the torch to Ron Vachris, Costco’s current president and chief operating officer. A 40-year veteran of the company himself, Vachris started working as a Costco forklift driver and worked his way to up serve in all the major roles related to the company’s business operations like real estate as well as buying and merchandising activities. We believe this succession plan will be seamless, with Vachris, 58, able to successfully manage and maintain the Costco culture given his longevity at the company. Jelinek will remain with Costco through April 2024 in an advisory role and to help Vachris with the transition. As for future plans, the 71-year-old Jelinek told Jim he hopes to remain on Costco’s board for a while, and he intends to spend more time with his grandchildren. (Jim Cramer’s Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A Costco Wholesale warehouse sign is seen outside a store in Silver Spring, Maryland, on Aug. 5, 2023.
Mandel Ngan | Afp | Getty Images
Outgoing Costco CEO Craig Jelinek’s exit interview with Jim Cramer on Monday left us feeling even more confident about our investment in the wholesale retailer’s record-breaking stock.
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