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Non-Tech : Costco, slow but sure?
COST 934.97-0.6%3:59 PM EST
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To: Zakrosian who wrote (738)9/28/1998 5:57:00 PM
From: Clay Takaya  Read Replies (1) of 1147
 
Zak,

I am open to COST doing well during a recession although I doubt very much that we will see growth -- COST will survive for sure. I also agree that management is top notch and that the overall product mix is insanely great.

One other point: if you dig into the numbers, you will see that the biggest growth engine for COST is NOT membership fees, but expanded net margins based on leveraging massive volume over slightly less fixed costs. Since COST does a huge amount of volume in comparison to its net income, even a slim % improvement in this ratio results in huge improvements to operating income. The last I looked (I am shooting from the cuff here as I am out of town and working from memory) I believe that membership was growing about 10-12 % while the growth in operating income was around 50% and climbing. The reason that a lot of analysts overlook this important important point is that currently, the membership fee income dwarfs the operating income. As sales continue to grow, you could see this change especially if COST is successful in pushing the high-quality, higher margin Kirkland brand.

I hope you are the one who is right about the recession and COST although I very much doubt I will be holding the stock when it becomes apparent we are going down.

Clay
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