Costco's Membership Dynamics and Pricing Strategies Fuel Performance

Designed to provide broad exposure to the Large Cap Value segment of the US equity market, the Invesco S&P 500 Revenue ETF (RWL) is a passively managed exchange traded fund launched on 02/22/2008.

The fund is sponsored by Invesco. It has amassed assets over $3.87 billion, making it one of the average sized ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Companies that fall in the large cap category tend to have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.39%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.45%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Healthcare sector--about 18% of the portfolio. Financials and Consumer Staples round out the top three.

Looking at individual holdings, Walmart Inc (WMT) accounts for about 4.25% of total assets, followed by Amazon.com Inc (AMZN) and Unitedhealth Group Inc (UNH).

The top 10 holdings account for about 23.49% of total assets under management.

Performance and Risk

RWL seeks to match the performance of the OFI Revenue Weighted Large Cap Index before fees and expenses. The S&P 500 Revenue-Weighted Index is constructed by using a rules-based methodology that re-weights the constituent securities of the S&P 500 Index according to the revenue earned by the companies in the parent index- subject to a maximum 5% per company weighting.

The ETF has gained about 16.27% so far this year and is up about 26.80% in the last one year (as of 10/11/2024). In the past 52-week period, it has traded between $74.89 and $98.40.

The ETF has a beta of 0.95 and standard deviation of 15.10% for the trailing three-year period, making it a medium risk choice in the space. With about 504 holdings, it effectively diversifies company-specific risk.

Alternatives

Invesco S&P 500 Revenue ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, RWL is a good option for those seeking exposure to the Style Box - Large Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV) track a similar index. While Schwab U.S. Dividend Equity ETF has $62.11 billion in assets, Vanguard Value ETF has $128.39 billion. SCHD has an expense ratio of 0.06% and VTV charges 0.04%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research

Recent data from JPMorgan's exclusive survey indicates that price gaps between Walmart Inc and competitors like Kroger Co and Albertsons Companies Inc are narrowing.

Kroger has traditionally maintained higher prices than Walmart, resulting in a price premium over its competitor. However, a recent shift in pricing strategies could signal a change in the competitive landscape as companies adjust to attract increasingly price-sensitive consumers. Notably, Kroger has reported a 2% decrease in its tracked prices since June 2024, marking the most significant decline recorded since the survey began.

Price Trends, Consumer Behavior

Walmart has raised its prices by 1.7%, while Albertsons and Sprouts Farmers Market Inc. have increased their prices by 1.4%, which contrasts sharply with Kroger's recent price cuts. These changes highlight a shift in consumer sentiment as shoppers prioritize value.

As a result, Kroger’s price premium over Walmart has fallen to 10%, down from 13.3% in June, making it more competitive in a market where consumers are increasingly conscious of pricing.

Meanwhile, Albertsons' prices have increased 5.8% since August 2023, potentially leading to a decline in customer loyalty and sales.

Read Also: Walmart: Retail Juggernaut Has More Room to Grow for Investors

Implications For Investors

The narrowing price gaps could have significant implications for investors.

Companies that effectively manage perishables and focus on maintaining competitive pricing may see enhanced market shares and improved earnings.

Notably, while Kroger is cutting prices to stay competitive, Albertsons has invested heavily in perishables, resulting in a 3.2% decline in pricing for this category. SFM, conversely, saw prices rise 4.6%, which might position it differently in terms of market strategy.

As these companies prepare for upcoming earnings reports, investors should closely monitor how they adapt to inflationary pressures and changing consumer preferences.

The insights provided by JPMorgan underscore the importance of strategic pricing in navigating the competitive grocery landscape. Investors should carefully evaluate each retailer's approach to pricing to make informed decisions.

Read Next:

• Kroger, Albertsons Shares Dip After FTC Gives Closing Arguments In Hearing To Block Merger

Image created using artificial intelligence via Midjourney.

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BJ's Wholesale Club Holdings, Inc. BJ, one of the leading operators of membership warehouse clubs, has been reinforcing its position in the industry with its strong customer value proposition and business model. Its relentless efforts to boost the membership base, simplify assortments, enhance digital capabilities and accelerate club openings have been contributing to sales. The company has been sparing no effort to bolster omnichannel operations and ramp up delivery services.

Membership Growth Aids BJ

BJ's Wholesale Club's commitment to enhancing its marketing and merchandising capabilities, combined with its strategic expansion into high-demand product categories and a diversified own-brand portfolio, has produced exceptional results. These proactive initiatives have played a pivotal role in driving a substantial increase in membership signups and renewals, resulting in a rise in membership fee income.

In the second quarter of fiscal 2024, membership fee income witnessed a year-over-year increase of 9.1%, driven by strong renewal rates and successful membership acquisition. We foresee a sustained improvement in membership fee income as new club openings ramp up. BJ's Wholesale anticipates that its membership fee income growth for fiscal 2024 will surpass its long-term goal of a mid-single-digit increase. It also plans to open 12 clubs in the current fiscal.

Digital Innovation: A Key Tailwind for BJ

BJ's Wholesale Club has been directing resources toward expanding digital capabilities to better engage with members and provide them with a convenient way to shop, including same-day delivery, curbside pick-up, and buy online, pick up in-club. It has built a strong digital portfolio with Bjs.com, BerkleyJensen.com, Wellsleyfarms.com, and BJ’s mobile app. These enable members to buy, review products and digitally add coupons to their membership cards. Members can track their annual savings as well.

The company has teamed up with DoorDash and Instacart to provide on-demand grocery delivery from its stores. It also rolled out Same-Day Select, through which members, on payment of an upfront fee, can avail of either unlimited or 12 same-day grocery deliveries delivered over a year. This offering enhances the convenience and flexibility for members, making it easier for them to receive their groceries quickly.

Management believes that digitally engaged members have higher average baskets and make more trips per year than members who shop in-club only. Digitally enabled comparable sales rose 22% in the second quarter of fiscal 2024. Clubs fulfill more than 90% of digitally enabled sales.

Final Thoughts on BJ

We believe that BJ's Wholesale Club’s growth strategies, better price management, decent membership trends and digitization should keep supporting comparable sales trends. 

As part of its long-term financial targets, BJ’s Wholesale Club projected a low-to-mid-single-digit-percentage increase in comparable club sales, excluding the impact of gasoline sales. The company, which shares space with Costco COST, Walmart WMT and Target TGT, guided total revenue growth of a mid-single-digit percentage. It expects a high-single-to-low-double-digit-percentage increase in earnings per share in the long run.

A Synopsis of Other Stocks: COST, WMT & TGT

Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. A customer-centric approach, strategic pricing, merchandise initiatives and an emphasis on memberships have helped Costco post consistent sales growth. The company’s net sales rose a modest 1% year over year to $78,185 million, while membership fees increased slightly by 0.2% to $1,512 million in the fourth quarter of fiscal 2024.

Walmart has been diligently working to strengthen its already formidable presence in the market. The company has embarked on a series of strategic e-commerce initiatives, encompassing acquisitions, partnerships and significant improvements in its delivery and payment systems. Walmart is committed to elevating its merchandise offerings, ensuring a diverse and appealing product assortment. The company’s net sales grew 4.8% year over year to $169.3 billion in the second quarter of fiscal 2025.

Target has been deploying resources to enhance omnichannel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide customers with a seamless shopping experience. The company has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. Comparable sales rose 2% in the second quarter, following a decline of 3.7% in the preceding quarter. The metric reflected an increase of 0.7% and 8.7% in comparable store sales and comparable digital sales, respectively.

Zacks Investment Research

Technology stocks were declining premarket Thursday as the SPDR S&P Semiconductor ETF fell by 0.1% and the Technology Select Sector SPDR Fund was recently down 0.6%.

E2open Parent Holdings shares fell nearly 23% after the company reported fiscal Q2 revenue of $152.2 million, down from $158.5 million a year earlier. E2open also cut its fiscal 2025 revenue guidance to the range of $607 million to $617 million from $630 million to $645 million.

Symbotic shares were up nearly 4% after the company said it commercial agreements to implement its warehouse automation systems in two greenfield distribution centers of Walmart subsidiary Walmart de Mexico y Centroamerica near Mexico City.

Richardson Electronics shares were up 0.9% after the company reported fiscal Q1 net sales of $53.7 million, compared with $52.6 million a year earlier.