
•Costco is well positioned as a low-cost provider of consumer goods in a challenging economic environment. The chain keeps prices low by focusing its massive buying power on relatively few SKUs (items) in order to obtain the best prices for its consumers. The company does not seek to maximize its sales margins but rather seeks to drive results by using low prices to grow transactions.
•Strong fiscal 4Q22 results (ended 8/28/22) included a +10% y/y comp (adjusted for gas & foreign exchange), net sales up +15% y/y and net income up +6.5% y/y (adjusted for an $84MM fiscal 4Q21 write-off).
•Notably, sales from its CostcoGrocery division (including third-party delivery) increased +20% y/y during the quarter.
•Corporate reported a slight improvement in its supply chain as it relates to on-time deliveries and lower container prices.
•Total inventory grew a sizeable +26% y/y during the quarter, including +10% to +11% inflation. Organic +15% inventory growth suggests management’s confidence in going forward sales growth and reveals a strategy to position against future wholesale price increases (with wage inflation likely to stick long-term).
•Corporate reported an increase in competitive promotional activity, indicative of supply chain improvements.
•While Costco does not seek to “harvest margins”, its strategy is to subsidize “hot dogs & soda” with current excess profits on gasoline and travel sales.

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