Leading Competitive Edge Keeps Costco Solid

Wide-moat

While e-commerce remains a small piece of the firm's business currently (at less than 5% of sales), we view its growth in this channel (up 36.8%, on top of the near 20% last year) as evidence that Costco can cater to the changing consumer shopping habits that are gravitating online. These efforts also extend to its omnichannel experience (order online/pick-up in store), which management qualitatively mentioned as driving more consumers into the store. This omnichannel cycle may also increase the firm's brand awareness, which can help support its grocery delivery (both dry and fresh). Although nascent, we think the firm's expansion in this category (to all 520 U.S. warehouses by the end of the year) will also support its e-commerce (and sales growth) efforts (although details are sparse still). In the aggregate, we don't intend to alter our long-term outlook, calling for 6% top-line growth and 3.5% operating margins (which compares with its five-year average of 3.1%, as we incorporate increased economies of scale).

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