Costco's Struggles Intensify Amidst Immigration Crackdown and Tariffs

The author reiterates their short thesis on Costco, citing the impact of immigration crackdowns and tariffs on the company's performance. They argue that Costco's value is overestimated and believe it is worth only half its market value. The author previously published this thesis a year ago and was initially met with skepticism.

Title: Costco's Performance Amidst Immigration Crackdowns and Tariffs

Costco Wholesale Corporation (COST) has been under scrutiny for its potential vulnerabilities in the face of immigration crackdowns and tariffs. The company's performance has been a subject of debate, with some arguing that its value is overestimated. This article revisits the short thesis on Costco, originally published a year ago, and evaluates its current relevance.

Immigration Crackdowns and Tariffs

Immigration crackdowns and tariffs have the potential to significantly impact Costco's operations and supply chain. The company's membership-based model relies on a diverse customer base, and any restrictions on immigration could lead to a decrease in customer numbers. Additionally, tariffs imposed on key imports could increase the cost of goods, potentially leading to higher prices for consumers and reduced profitability for Costco.

Tariffs on Seven Countries

US President Donald Trump announced new tariffs on seven countries, including the Philippines, Brunei, and Moldova, among others. These tariffs, ranging from 20% to 30%, are aimed at addressing trade imbalances and correcting years of tariff and non-tariff policies [1]. While these tariffs are not directly targeted at Costco, the company may face indirect impacts, such as increased costs for imported goods and potential disruptions in its supply chain.

Costco's Resilience

Despite these challenges, Costco has shown resilience in its business model. High membership renewal rates, efficient supply-chain operations, and bulk purchasing power have allowed the company to maintain competitive pricing and customer loyalty. The company's ability to adapt to market trends and consumer preferences has also been a key factor in its success.

Market Capitalization and Valuation

Costco's market capitalization of approximately $414 billion is significantly higher than that of Target Corporation (TGT), which stands at about $48 billion. The company's valuation, however, has been a subject of debate. Some argue that Costco's value is overestimated, and it is worth only half its market value. This thesis was previously met with skepticism but warrants reevaluation in light of the current economic climate.

Conclusion

The short thesis on Costco, originally published a year ago, remains relevant amidst the current economic conditions. While the company has shown resilience in the face of immigration crackdowns and tariffs, the potential impacts on its operations and supply chain cannot be ignored. Investors should closely monitor the company's performance and consider the potential risks associated with these external factors.

References

[1] https://www.aa.com.tr/en/americas/trump-announces-tariffs-on-7-countries-beginning-aug-1/3626394