Core Viewpoint - Costco Wholesale has demonstrated significant long-term shareholder rewards, with a total return of 216% over the past five years, outperforming the market despite current stock trading 9% below its record high from February 2023 [1][2]. Group 1: Company Performance - For fiscal 2025 Q3, Costco reported net sales of $62 billion, making it the world's third-largest retailer [3]. - The company's membership model fosters strong customer loyalty and generates recurring revenue, contributing to its robust sales performance [3]. Group 2: Competitive Advantage - Costco's business model is difficult to disrupt due to its substantial cost advantages, allowing it to purchase inventory at favorable prices and pass savings onto customers, which encourages increased spending [4]. Group 3: Valuation Concerns - Despite its strong historical performance and a market capitalization of $433 billion, Costco's stock is currently trading at a price-to-earnings ratio of 55.3, nearing its highest valuation in the last 25 years [5]. - The current high valuation suggests that Costco may not be an obvious buying opportunity at this time, even though it remains a strong business to monitor [6].

Core Viewpoint - The retail sector presents challenges for investors due to rapidly changing consumer preferences and retailer adaptability, with Costco and Kohl's demonstrating contrasting performance trends [1][2]. Costco - Costco is well-known for its bulk-selling warehouse model, charging an annual membership fee that grants access to a wide range of goods and services at competitive prices [4]. - The company has maintained high membership renewal rates, consistently around 90%, with a recent rate of 92.7% in the U.S. and Canada despite a membership fee increase [5]. - Membership numbers have grown to 79.6 million, up from 76.2 million, and the company operates 905 warehouses, having opened 20 to 30 new locations annually [6]. - Costco's operating income increased by 15.2% to $2.5 billion in the third quarter, reflecting strong profitability [6]. - Over the past five years, Costco's share price has risen by 203.8%, significantly outperforming the S&P 500's 98.7% increase [7]. - The stock has a high price-to-earnings (P/E) ratio of 56, indicating strong market expectations for continued profitability growth [8]. Kohl's - Kohl's offers a range of moderately priced merchandise but has struggled with declining sales and profits, with fiscal 2024 same-store sales dropping by 6.5% and earnings per diluted share falling by approximately 47% to $1.50 [9][10]. - The company has implemented various initiatives to drive traffic and sales, including integrating Sephora beauty shops and facilitating Amazon returns, but these efforts have not significantly improved sales [9]. - Management projects a further decline in same-store sales of 4% to 6% and diluted earnings per share to fall between $0.10 and $0.60 for the current fiscal year [11]. - The company has experienced leadership instability, with the recent CEO being terminated after a few months, complicating long-term turnaround efforts [11]. - Kohl's board reduced the quarterly dividend from $0.50 to $0.125, a move that typically signals a lack of confidence in future performance [12]. - Over the last five years, Kohl's share price has decreased by more than 55%, and it currently has a low P/E multiple of 9 [12]. Selection - Costco is identified as a better-managed company with consistent execution and growth opportunities, despite its higher valuation compared to Kohl's [13]. - Kohl's is viewed as a less attractive investment due to the current unlikelihood of a turnaround [13].