All Things Considered, Costco's Doing Just Fine

Volatile gas prices and the dollar distracted the business media from an increase in Costco membership fees.
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What in the wide, wide world of scattered, investor-misleading reporting is up with Costco (COST) - Get Report? Despite the chain's visibility and seemingly easy-to-understand business, the business media rarely get it right.

When reporting on Costco's

November same-store sales

, too much of the business media left out or subordinated the issue of the company's gas sales. When gas prices are volatile (as they have been for quite some time), Costco's fortunes shift accordingly. If you don't factor that in prominently, you'd think the crazy lurches were a function of Costco's merchandising, or of competition from

Wal-Mart

(WMT) - Get Report

or

Target

(TGT) - Get Report

, or of a larger trend in consumer behavior.

Costco also has, as we saw once again when it reported earnings yesterday, a dependence on the value of the dollar, which is obviously also volatile, In this case, it made up for a mid-single-percentage difference in Costco's earnings.

The business media are probably thrown because the variables for Costco are too big. Even

The Wall Street Journal

, instead of separating out the gas and dollar variables, lumped them in with a merchandising category: "

The company said higher gasoline margins offset the effect of a strengthening dollar and falling nonfood sales

."

If higher gas margins were offset by the strengthening dollar, that's fine. Those two variables are out of the company's control. With all else being equal, you can still adequately appraise how the company is doing in terms of merchandising. But once you throw a merchandising category in with the larger variables, heads start to spin.

Surely, that's what happened here.

All in all, gas helped, and currency hurt. As for the more important nonvariables, nonfood sales were slow, while food sales were decent. And the company was responsibly conservative going forward, guiding toward the lower end of expectations for the second quarter.

Reuters

deigned to mention an important long-term indicator for Costco that many business media outlets left out altogether:

Membership fees increased 6 percent to $358.7 million

.

Everything considered, what should be your takeaway? Costco had a reasonably good quarter, considering the environment. If you have the stomach and wallet for turbulence, it's a good long-term retail play. Amid all these variables, remember that all you are looking for from a retailer in a bad environment is that it does the financial equivalent of essentially holding serve.

That, in the end, is what Costco accomplished.

But the business media, as often happens with Costco, did not accomplish much more than confusing the savvy investor.

While doing well to mention the membership numbers,

Reuters

did not mention gas or the greenback until the bottom.

Our own

TheStreet.com

was so spun around by everything that it reported that

second-quarter earnings would be on the high side

.

And

Forbes

, by contrast, went way overboard on the negative side with this condemning subheadline: "

The warehouse operator gets crushed by slumping consumer spending and a stronger dollar

."

"Crushed"?

That brings us to another issue. In its second sentence,

Forbes

went with frequently used evidence that the earnings reported that day were crushingly bad: The stock went down.

But hold on a moment, savvy investor.

The

Dow

was down 196.33, or 2.24%. Costco fell just more than a buck and a half, which translates into a hair more than 3%. A shade worse than the market, true, but it was in a difficult sector, and, all in all, there wasn't enough of a spread to serve as a reliable piece of condemning evidence.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven� column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

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