posted by mark
on Thu, 03/05/2020 - 21:00
Costco reported second quarter earnings today and things are looking good - as usual.
A couple of great points about Costco are:
- Their per share earnings are rising nicely over the last few years. Interestingly, they are doing this without a focus on stock buybacks. In an era where most companies are "goosing" their per share earnings with stock buybacks, Costco has kept their shares pretty steady. Buying back shares doesn't prove productive capability. Buying back shares is financial engineering - a slight of hand. Costco is showing great operating efficiencies in their core business – no games here.
- Gross profit is moving slightly down over a number of quarters. It tells me that they are focusing on giving their customers better values. This helps to cement long term customers.
- At the same time, operating profit is moving slightly up. So, they are operating efficiently to convert lower gross margins to earnings - a sign of a well-run business.
- Their debt to (debt+equity) has decreased since the end of last year and the trend has been down for several years. They are thinking ahead and not following the crowd by gorging on debt. As an economic cycle extends, as the current one has, it is wise to error on the side of caution.
Nice job Costco.
By the way, I was in Costco the other day to get some stuff. I call this my "boots on the ground". The value I got for the price I paid appeared to be pretty good. The place was packed and the parking lot was full. While this is only a sample of one visit, it confirms what I believe I see in their financials.
Be smart, be well-read and be successful.
