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Tickers in this Article: COST, PG, UN, UL, BBBY
Warehouse retail leader Costco (Nasdaq:COST) just closed out its fourth quarter and fiscal year. It was business as usual as sales grew briskly and management was able to leverage the top-line improvement into higher earnings growth. To justify where the current share price is trading at, it must continue performing at this level for many more years.

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Fourth Quarter Review

Net store sales improved 8% to $23.6 billion as same-store sales increased 3% at the U.S. stores and a very healthy 8% internationally. Total company comps grew 4% as Costco currently operates 73% of its store base in the United States and Puerto Rico and domestic trends still drive overall results. Total company store sales reached $24.1 billion and included $533 million in membership fees that grew nearly 9% for the quarter and basically account for the company's profits.

Management cited strength in the sporting good and house ware categories, suggesting that consumers are opening up their wallets beyond more basic necessities such as food and fundamental consumer goods from the likes of Procter & Gamble (NYSE:PG) and Unilever (NYSE:UN, NYSE:UL) that sell many of their products at Costco stores. This sentiment was recently echoed from specialty retailer Bed Bath & Beyond (Nasdaq:BBBY) which specializes in selling home-related merchandise.

Cost controls boosted operating income by 15.1% to $688 million. Net income grew 15.5% to $432 million, demonstrating just how much the membership fees mean to the bottom line. Higher shares outstanding tempered diluted earnings growth, which rose 14.1% to 97 cents per share.

Full-year Recap
Full-year sales grew 9.1% to $78 billion as store-sales increased the same amount and membership fees improved 10.3% to $1.7 billion. Total same-store sales increased 7%. Operating income jumped 16.9% to $2.1 billion and net income rose 20% to $1.3 billion, or $2.92 per diluted share.

Costco management doesn't provide forward guidance but analysts currently project sales for the coming year will increase just over 9% to just under $78 billion. Earnings are currently expected to reach $2.91 per share, a number that implies negative year-over-year earnings growth from this year's $2.97 in basic (not diluted) earnings per share.

The Bottom Line
Shares of Costco trade richly at a trailing P/E of about 22. Domestic trends are improving along with the economy and consumer spending while international is boosting growth and should be the driver of new store expansion for many years to come. Additionally, the company is very well-run and financially sound as cash on the balance sheet is more than double long-term debt levels.

However, much of this growth is already discounted in the share price and means the shares are priced for perfection. Sales and profits have grown a hair over 10% for the past decade and will have to keep the same pace for about the next 10 years. If they don't, investors don't stand much chance of making money on the stock at the current price. (For further reading, see Analyzing Retail Stocks.)

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