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].

Core Insights - The article highlights the significant impact of artificial intelligence (AI) on the stock market and the economy, with companies like Nvidia seeing stock increases of 809% over the past three years [1] - It emphasizes that not only tech companies but also traditional retailers like Costco have shown impressive stock performance, with Costco's stock up 232% over the past five years [2] Company Overview - Costco has established itself as the leading warehouse club operator, differentiating itself from giants like Amazon and Walmart [4] - The company operates on a membership-based model, boasting 79.6 million memberships as of May 11, reflecting a year-over-year increase of 6.8% [5] Financial Performance - In the latest fiscal quarter, Costco reported $62 billion in merchandise sales, positioning it among the largest retailers globally [6] - Costco's same-store sales increased by 5.7% in the latest fiscal quarter, following increases of 5.3% in fiscal 2024 and 3% in fiscal 2023, indicating consistent growth [9] Cost Structure and Economic Moat - The company benefits from significant buying power, allowing it to acquire merchandise at favorable costs, with selling, general, and administrative expenses at just 9% of total revenue, compared to Walmart's nearly 21% [7] - Costco's business model, primarily reliant on membership fees, enables it to maintain low merchandise prices, creating a positive feedback loop that supports its economic moat [7] Dividend Policy - Costco pays a quarterly dividend of $1.30 per share, yielding 0.5% at the current share price, and has a history of issuing special dividends, including a recent $15 per share distribution in January 2024 [10] Investor Sentiment - The company has consistently outperformed the S&P 500 index over various time frames, showcasing its strong investment appeal [11] - Despite its strong performance, Costco's price-to-earnings ratio has reached 56.8, suggesting that investors may want to wait before purchasing the stock [13]