Core Viewpoint - The controversy surrounding the introduction of the brand Haoliyou at Sam's Club highlights a fundamental conflict in the warehouse membership store model, where a misalignment between brand promises and user expectations can undermine the foundation of the paid membership system [1][2][3] Group 1: Membership and Consumer Trust - Sam's Club has built a unique value proposition by offering a "quality filter" through its membership model, which allows consumers to trust that the products on its shelves are carefully selected for quality and value [1][2] - The introduction of controversial brands like Haoliyou has raised questions about the trust consumers place in Sam's Club, as it appears to compromise its commitment to quality [2][3] - The core of the membership retail model is not merely selling products but selling trust, where consumers pay for the assurance that the brand will consistently deliver on its promises [3] Group 2: Impact of Product Selection Changes - The shift in product selection, with the addition of widely available brands and the removal of previously popular items, challenges the perception of Sam's Club as a premium retailer [2] - Complaints regarding product quality, such as issues with food safety, have increased, leading to a decline in the perceived quality associated with the Sam's brand [2] - The tension between rapid expansion and maintaining quality control is evident, as Sam's Club plans to open eight new stores by 2025, which may strain its supply chain and product selection standards [2][3] Group 3: Strategic Recommendations - It is crucial for Sam's Club to realign its brand promises with user expectations to restore consumer trust and maintain the integrity of its membership model [3] - Balancing global sourcing with local adaptation while ensuring quality standards is essential for sustaining the "Sam's Selection" brand image [3] - Failure to address these issues may lead to a perception that Sam's Club is no different from regular supermarkets, undermining its competitive advantage [3]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 2.35 [8][9]. Core Insights - The company reported a significant improvement in profitability for FY25, achieving a revenue of HKD 71.55 billion (down 1.4% year-on-year) and a net profit of HKD 405 million, reversing a loss of HKD 1.605 billion in the previous year [1][2]. - The new management has focused on fine-tuning operations at frontline stores and implementing more efficient cost control measures, leading to a return to profitability [1][3]. - The company plans to continue its strategy of tailored store operations and aims for steady improvement in profitability through enhanced operational efficiency [4]. Revenue and Profitability - The company's merchandise sales revenue was HKD 68.48 billion, also down 1.4% year-on-year, primarily due to a contraction in supply chain operations and the closure of underperforming stores. However, the average transaction value increased, resulting in a same-store sales growth of 0.6% [2]. - Rental income decreased slightly to HKD 3.03 billion, down 2.8% year-on-year, attributed to store closures and tenant restructuring, with an overall vacancy rate of approximately 4.7% [2]. - Membership fees generated revenue of HKD 40 million, reflecting a substantial year-on-year growth of 125% [2]. Cost Control and Margins - The gross margin slightly declined by 0.6 percentage points to 24.1%, driven by a focus on high-value products. However, cost control measures were effective, with total expenses (excluding impairment impacts) decreasing by HKD 2.2 billion [3]. - The net profit margin improved by 2.8 percentage points to 0.6%, with adjusted profits reaching HKD 690 million, corresponding to a profit margin of 1.0% [3]. Future Outlook - The company’s operational strategy will focus on three main areas: enhancing efficiency through a "daily low price + community life center" model, continuing cost-saving measures, and expanding revenue sources through improved store formats and membership offerings [4]. - The company expects to see same-store sales growth of 8% in medium-sized supermarkets, with positive cash flow anticipated as the business model stabilizes [4]. Earnings Forecast and Valuation - The report maintains net profit forecasts of HKD 500 million for FY26 and HKD 660 million for FY27, with an introduction of an FY28 forecast of HKD 850 million [5]. - The average PE ratio for comparable companies is projected at 43x for FY25, leading to a target price adjustment of 9.6% to HKD 2.35, while maintaining the "Buy" rating [5].

Core Viewpoint - Costco's Q2 FY2025 financial results show strong growth in revenue and comparable sales, but profits fell short of expectations, indicating potential inflationary pressures in the U.S. economy [1][7][10]. Sales Performance - Overall comparable sales growth for Costco was 6.8%, significantly higher than the previous quarter and exceeding market expectations by 0.4 percentage points. When excluding fuel price fluctuations and currency effects, the comparable sales growth reached 9.1%, a 2 percentage point increase from the previous quarter [1][10]. - The sales growth can be attributed to a 5.7% increase in customer traffic and a 1% increase in average transaction value. This quarter marked the first time since Q1 FY2023 that the average transaction value increased by over 1% year-over-year [1][11]. Regional Analysis - In terms of regional performance, comparable sales in the U.S., Canada, and other international markets grew by 8.3%, 4.6%, and 1.7%, respectively. The U.S. market was the primary driver of growth, with a 3.1 percentage point increase from the previous quarter [2][12]. - Excluding currency and fuel price impacts, comparable sales growth in Canada and international markets also reached 10% [2][12]. E-commerce Growth - E-commerce sales surged by 21% year-over-year, significantly surpassing the expected 15% growth. Online traffic increased by 13%, and average order value rose by 10%, indicating a strong upward trend in pricing [3][13][14]. Membership Fees - Membership fee revenue for the quarter was $1.19 billion, a 7.4% year-over-year increase, but below the market expectation of 9.5%. The number of paying members increased by 1 million, representing a 6.8% year-over-year growth, which is the lowest growth rate in recent times [3][15][16]. Financial Metrics - Total revenue for the quarter reached $63.7 billion, a 9% year-over-year increase, driven primarily by strong product sales. The gross profit margin for merchandise sales was 10.9%, a slight increase of 0.05 percentage points year-over-year [4][17][19]. - Operating profit was $2.32 billion, reflecting a 12.3% year-over-year increase, although it fell short of the market expectation of $2.33 billion. Net profit was $1.79 billion, a 2.6% year-over-year increase, which was below the expected $1.84 billion [5][22]. Cost Management - Selling and administrative expenses totaled $5.85 billion, a year-over-year increase of 8.1%, which was slightly lower than the revenue growth rate. This resulted in a decrease in the expense ratio to 9.06% [4][18].