Gold and Silver Sales at Costco Are Boosting Same-store Sales, but Profit Remains Elusive

Costco Wholesale Corp.'s foray into the sale of gold and silver has sparked considerable interest, according to Wells Fargo analysts, though profitability remains uncertain.

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The analysts noted on Tuesday that while Costco's precious metal sales, which commenced with the introduction of one-ounce gold bars in August/September of 2023 and later expanded to include silver in late January, are likely enhancing same-store sales by approximately 1%, the profit margin is expected to be minimal.

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During its fiscal first quarter, Costco reported $100 million in sales from these ventures. The Swiss-made 24-karat gold bars have reportedly been in high demand since their launch.

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Wells Fargo analysts, led by Edward Kelly, highlighted the notable customer interest due to Costco's competitive pricing and strong reputation. They observed a surge in momentum evidenced by increased Reddit posts, rapid online sellouts, and robust monthly e-commerce sales.

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The analysts estimate that Costco is selling up to $200 million worth of gold and silver monthly, contributing an additional 3% to general merchandise sales. They anticipate continued strong momentum in same-store sales, particularly if the precious metals offerings continue to resonate with customers.

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While praising the strategic move to include precious metals in Costco's product lineup, the analysts cautioned that the low profitability, given the competitive pricing and shipping costs, may limit the profitability of this venture.

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Wells Fargo maintains an equal weight rating on Costco's stock, acknowledging its status as one of the highest quality consumer names, but considers the risk/reward balance relatively neutral at current price levels.

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The surge in gold prices this year, driven by safe-haven demand amidst expectations of interest rate cuts by the Federal Reserve and geopolitical tensions, has also benefited Costco's venture into precious metals. Central bank buying has further buoyed gold prices, with demand remaining consistently high.

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Costco's gold bars are restricted to five per customer, showcasing the company's diversification efforts beyond its traditional offerings of food and household items.

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Costco did not immediately respond to requests for comment.

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The company's stock rose by 0.2% on Wednesday and has gained 9% year-to-date, aligning with the S&P 500's performance.

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