Costco Delivers a Peter Lynch Moment

Costco just delivered numbers that blew out analyst estimates:

Costco Wholesale Corporation …today reported net sales of $5.14 billion for the month of May, the four weeks ended June 3, 2007, an increase of 11 percent from $4.63 billion in the same four-week period last year.
For the first forty weeks of its reporting period ended June 3, 2007, the Company reported net sales of $47.96 billion, an increase of 9 percent from $44.10 billion during the similar 40-week period of the prior year. The fiscal 2007 year-to-date net sales results include the $452 million adjustment to the sales returns reserve previously reported in the fiscal 2007 second and third quarter results. Excluding the sales returns reserve adjustment, net sales for the 40-week year-to-date period were $48.41 billion, representing a 10% increase over the prior year.

This happens against a backdrop where there is a lot of worry that retail sales are weak across the board:

May is expected to be a better month for retailers than April was, but that’s not saying much.
The weather improved during the weeks following April, which was among the worst months on record for retail sales. On top of cold, rainy skies, an earlier Easter had shifted some sales out of April, helping fuel a rare collective monthly decline in same-store sales, or sales at stores open at least a year.
In May, sunnier skies helped free pent-up demand for unsold spring apparel, and retailers have controlled inventories well through the season’s ordeal, protecting margins. And May will enjoy a small benefit from an early Memorial Day, which will help it steal a few sales from June.
Still, May’s improvement won’t likely reverse a slowdown in retail spending that economists have observed during the past six months or so. While a few luxury retailers like Saks Inc. (SKS) continue to ring up big sales amid the stock market’s advance, lower-income consumers are grappling with soaring gasoline prices. As worries about housing and wage growth persist, results at many chains are expected to be a mixed bag, as mall traffic has continued to stagnate.
Most big retailers are due to report May same-store sales – a closely watched measure of performance in the industry – on Thursday, and analysts currently expect a 2.5% increase, says Ken Perkins, president of Retail Metrics Inc., a Swampscott, Mass., research firm. That’s better than April’s 2% decline, but slightly below average for the past six months, and well short of the 4.5% increase seen a year earlier.
Wal-Mart Stores Inc. (WMT) is currently expected to post a 1.3% gain, in line with its forecast for a 1% to 2% increase, and ahead of the 3.5% decline posted in April – its worst monthly performance in 28 years of recordkeeping. The Bentonville, Ark., retailer has noted recently that its shoppers have expressed concerns about the price of gasoline and their personal finances. Gasoline also has been a worry for dollar stores like Dollar General Corp. (DG) and Family Dollar Stores Inc. (FDO).
However, a few retailers that traditionally have been classified as discounters have managed to shore up sales by courting a broader base of shoppers. Target Corp. (TGT), for example, mid-month backed its estimate for a 5% to 7% increase. The Minneapolis-based chain is likely getting support from higher-income devotees of its “cheap chic” fashions. Analysts also expect Costco Wholesale Corp. (COST) to post a 4.5% increase, as well-heeled shoppers flock to its warehouse clubs for big-screen TVs, fine wines and fresh crab legs. — June 5, 2007 Dow Jones

Pardon me, but it can’t all be due to LCD TVs, wine and crab legs. Perhaps this is a classic example of the old Peter Lynch, One Up on Wall Street analysis.
Yes, Costo is making it big as the purveyor of The Good Life, but there might be a more 2 + 2 = 4 sort of reason to their gangbuster sales: ancillary businesses.
You know, like that big huge GAS STATION in front of each warehouse where members pump the cheapest gas in town? Like the PHARMACY where all those prescription drugs are being filled at the lowest fees in town?
More on Costco, The ‘anti-Wal-mart’.