Costco (COST) manages its money incredibly carefully. Because the company's core business is offering low prices in its warehouses to its members, it can move very slowly when it comes to doing anything that does not support that goal.
That's why the warehouse club moved very cautiously when it came to e-commerce and it still only offers a fairly limited set of options there. Costco does not have to spend on the infrastructure Amazon (AMZN) and Walmart (WMT) need in order to offer next-day and even same-day delivery.
Costco does have same-day delivery, but it lets Instacart provide that service for members. That's a smart play where the chain's paying customers have the choice, but the company does not have to spend any money.
Historically, Costco has put some of its resources into adding new locations, and that's an area where the company may spend more money, according to comments from CFO Richard Galanti during the chain's first-quarter earnings call.
"If you ask Craig [CEO Craig Jelinek], who's not in the room, but if you ask him, if we're opening a net of 24 this year, I think I said, what's the goal five and 10 years from now, probably to get it closer to 30 net," he said.
That would use up some of the company's cash balance, but it likely would not stop it from doing something investors will like very much.
Ting Shen/Xinhua via Getty) (Xinhua/ via Getty Images
Costco Plans a Special Dividend
Costco has steadily raised its dividend as a way to put money back in shareholders hands. It has also never hesitated to pay special dividends. In fact, the warehouse club has paid a special dividend four times over the past decade or so. The most recent being a $10-a-share payout made in December 2020.
"We've done four specials. And as one of the board members said, we are a little quirky and it seems to have worked for us. So it's certainly an arrow in our quiver, but we haven't made any decision at this point," Galanti said during a previous earnings call.
Now, during the Q1 call, he made it clear that a special dividend is being considered again.
"As it relates to the special dividend, as you know, we've said before, it's certainly an arrow in our quiver that has boded well for us, we believe. We think that's done well. We've done four of them. The last one was a couple of years ago, and we certainly do have cash," he said.
Costco has roughly $12 billion in cash and short-term investments.
"Mind you, when you look at our cash, about half of it's U.S. and not cash equivalents. And so, certainly, we have the ability to do it at some point. I think we wanted to wait and see how things are continuing here," he added. "I think that, too, is probably a question of when, not if. But again, you'll be the second to know after us."
Costco Keeps its Members Happy
Costco has cash on hand at least partly because it has done a very good job holding onto and adding members.
"In terms of renewal rates, at first quarter-end, our U.S. and Canada renewal rates were 92.5% compared to 92.4% a quarter ago. And worldwide rate came in both at this quarter-end and the previous quarter-end, the same level at 90.4%," Galanti shared.
Costco ended the first quarter with 66.9 million paying household members and 120.9 million cardholders, both up 7% versus last year. The company also added 22 new warehouses which accounted for 3% of its membership increase.
The chain continues to add to its more valuable Executive Membership customer base.
"At Q1 end, paid executive memberships were right at 30 million, an increase of 904,000 during the 12 weeks or 75,000 a week during the first quarter," Galanti said. "Executive members now represent 45% of our paid membership and just under 73% of worldwide sales."
