Yahoo Finance Why Have Costco Wholesale Corp. Shares Gained 12% So Far in 2018?
What happened
The internet can't disrupt Costco Wholesale Corp. (NASDAQ: COST). The warehouse club has clearly shown that its loyal member base won't be abandoning it for cheaper online options, and that it can steadily grow its numbers of paid members.
Through the first 36 weeks of its fiscal 2018, Costco has grown same-store sales by 9.7% and digital sales by 36.1%. Perhaps more important, it has grown its customer base while maintaining a renewal rate that hovers around 90%.
The warehouse club has also increased its profitability. Through 36 weeks the company has delivered net income of $2.09 billion ($4.74 per share), compared to $1.76 billion ($3.99 per share) during the year-ago period.
Investors clearly like what they see. After closing 2017 at $186.12 a share, the company's stock rose to $208.98 at the end of June, a 12% gain, according to data provided by S&P Global Market Intelligence.
Costco has seen its digital sales rise. Image source: Getty Images.
So what
While a lot of retailers have struggled with digital competition, Costco proved in 2018 that it could increase its digital business as a sort of added bonus for members. The company has improved its website and added delivery options, and makes better use of email offers.
That has helped make a membership even more useful, which likely helps the chain maintain its strong renewal rates. These changes also validate Costco's slow and steady strategy. The company did not rush to compete in digital or delivery. Instead, it waited to see what worked, and implemented the changes that made sense for its business.
Now what
Costco does not have to please the general public. Instead, the company needs to keep its members happy enough that they renew their memberships each year.
That's something the chain has been very able to do. Because Costco is membership-driven, the company can monitor its renewals and new sign-ups to gauge the health of its business. If it has a bad quarter (or even a bad month), it can take steps to correct the problem before it grows.
That does not seem to be something the warehouse club has had to do much of. Costco offers its members value and a fun shopping experience where you never know what you might find. So far, and for the foreseeable future, that should be enough to keep the company on a slow, steady path of growth.
More From The Motley Fool
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.
