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  • Chris Hill: Shares of Costco up this week after third quarter profits came in higher

  • than expected. But, for the first time in six years, Matty, same-store sales were flat.

  • Matt Argersinger: Right. I was trying to figure out what investors actually liked about this

  • report. Comps were flat. If you strip out foreign currency, gas sales, okay, up 3%.

  • But overall revenue up just 2.5%, really only because they're opening new stores. Profit’s

  • up 6%, a little better than expected. But these aren't exactly the growth numbers that,

  • in my view, justify a P/E of 30. Jeff Fischer: Such a hater.

  • Argersinger: I know. My only guess is that the traditional retail industry has been so

  • bad over the last six to nine months that Costco's slightly better than expected results

  • is getting it some love.

  • Ron Gross: Did they talk about retention at all? Are they seeing any slippage there?

  • Argersinger: There's no slippage of retention. I'll point out that they had better than expected

  • membership fee growth, which, of course, is a pillar of the business. So that's probably

  • giving it a little bit of a boost.

  • Hill: Six years of same-store sales growth, that's phenomenal, and that was bound to end

  • at some point. I think the question, Ron, becomes, three months from now, if we're looking

  • at this same number again, then it's no longer a speed bump. Then it's actually a point of concern.

  • Gross: I think that's fair. But as Matty pointed out, I don't really think it's as bad as it

  • looks because of foreign currency and because of gasoline. I think the numbers are still

  • pretty solid. Perhaps not as robust as they used to be, but they're still opening new

  • stores, they're growing on a per-store basis, retention is still good, you still have the

  • model working. And I'll add that you're probably ripe for another rise to the membership fee

  • at some point, which is another level they can pull, assuming the economy and the member

  • base are strong enough, so we can see some growth there.

  • Argersinger: There's also been a shift now moving to the new credit card, which, we'll

  • see. That could either be a good thing and lead to a lot of growth membership, or it

  • could not. We'll have to see.

  • Fischer: I have a question for you two guys, who I know follow Costco closely. Does management

  • talk about Amazon much at all in conference calls?

  • Hill: Would you, if you were Costco? (laughs) No!

  • Argersinger: Costco doesn't really mention Amazon by name. But they talk a lot about

  • their own ecommerce efforts, which are, on a relative basis, doing quite well. And they

  • have, of course, a relationship with Boxed, which is working out.

  • Gross: You can -- as you can with Amazon, not to this extent -- buy a lot of junk, an

  • amazing assortment, you can buy online as well. I've bought some interesting things myself.

  • Fischer: I would just think, overtime, Amazon will eat into that. Even Costco's business

  • is vulnerable with subscribe and save on Amazon and all the Prime members.

  • Argersinger: Pantry deals, that kind of thing.

  • Fischer: Exactly. We're buying more and more of those basics from Amazon themselves.

  • Gross: But, in like a Best Buy, where we say Best Buy is really just a showroom for Amazon,

  • I don't think you'll ever say that about Costco. You're going to Costco, you're leaving with

  • a cart full of stuff. If you're going to make that effort--

  • Fischer: If you're Ron.

  • Gross: (laughs) I don't think you're going to see, say, seven dozen pieces of licorice

  • and say, "I'm going to go buy it on Amazon." You're going to walk out with it.

  • Fischer: Yeah, but they could just not go to Costco, period.

Chris Hill: Shares of Costco up this week after third quarter profits came in higher

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