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Sozzi: 5 Secrets Costco Uses to Drive Profits for Investors

NEW YORK (TheStreet) -- For a retail store with a profoundly simple business model and interior layout, there always seem to be interesting Costco (COST - Get Report) secrets floating around the Internet. How many rotisserie chickens does Costco sell in a given year? Hey, did you know that Costco sells caskets and really pricey bling online? Of course, how can we neglect to mention this mega stat: a Costco worker makes about $12 more an hour than a Walmart (WMT - Get Report) or Target (TGT - Get Report) worker. I tell ya, the "Secret Cult Underworld of Costco Trivia" in many ways resembles the Starbucks (SBUX) secret menu that has dominated Twitter (TWTR) feeds this year, which I covered in a fun video.

Costco released its posted earnings this morning below analysts' estimates. The company posted fiscal third-quarter earnings up 3.1% to $473 million, or $1.07 a share, from $459 million, or $1.04 a share, a year earlier. Analysts were expecting earnings of $1.10 a share. The company also reported same-store sales up 6% in the quarter.

As a means to join this Costco cult underworld of facts and figures and to give investors some more relevant trivia to chew on as they digest that earnings report, I have dug through notes on the company compiled through seven years of client coverage. Enjoy this trivia. Most importantly, cut and paste it onto Twitter, copying me in.

  1. Costco's membership renewal rates continue to be at record levels ... in spite of downsized homes, would-be first-time homebuyers still being forced into renting small apartments and an on-paper U.S. economic recovery that should be enticing people to splurge a bit at the grocery store instead of watching every penny through bulk purchases from Costco or fill-in trips at Dollar General (DG - Get Report) and Dollar Tree (DLTR - Get Report).
  2. The timing of Costco's online shipments has improved recently as goods are now being shipped from three depots compared to one previously.
  3. When food price inflation increases, Costco's philosophy is to hold prices constant for as long as possible (until it becomes completely uneconomical). This leads to profit margin pressure, but volume gains as members choose to buy at Costco as opposed to price hiking supermarkets. Note that Costco's food profit margins are likely to be pressured near-term as a result of inflation in beef, chicken and assorted fruits/veggies.
  4. At 11% of total sales, gas is a key sales and traffic-driving business for Costco. When gas prices go down, Costco saves members more, quicker, than competitors, as it buys fuel daily. Local gas stations buy six to nine days of supply. This dynamic shifts when gas prices accelerate.
  5. Costco recently opened its first warehouse in Seville, Spain, it's initial foray into the Eurozone. One of the top-selling items off the bat was waffles, which are a relative unknown in the country. What U.S. shoppers take for granted in Costco's bulk packaging model continues to wow international members -- great to see if you are a Costco shareholder. Walmart stores in China don't open with that wow factor.
>>Read More: 

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, the author held no position in the stocks mentioned.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet. Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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