Costco has a problem in China, but it has nothing to do with tariffs, CNBC's Jim Cramer said Friday.e problem is Shanghai, a city of nearly 25 million people, has only one Costco store, the "Mad Money" host said.
Pair it with Costco's ability to deftly handle tariffs in the U.S.-China trade war, and it "sounds to me like a terrific investment thesis for owning Costco's stock for years and years to come," Cramer said.
When the wholesale chain opened its Shanghai store in August, overwhelming crowds forced it to shut down early. Signs near the store warned there may be a three-hour wait to park.
Costco's initial entrance into the Chinese market came in 2014, when it opened an online store on Alibaba Groups' Tmall online marketplace, according to Reuters.
But the massive success of the Shanghai store proves the staying power of Costco's business model, Cramer said. The shocking visuals from the store's opening day also foretold success in membership sign-ups, he said, noting that Costco CFO Richard Galanti recently indicated the location has more than 200,000 members.
Costco's locations in other Asian countries have around 100,000 to 120,000 after a few years, Galanti said.
Galanti's comments came on Costco's earnings call Thursday, after the Issaquah, Washington-based company issued its latest earnings report. Shares of Costco, one of the U.S.' largest retailers by sales, traded down 1.8% Friday, closing the session at $291.87.
Costco earned $1.73 per share, surpassing analyst forecasts of $1.72, according to IBES data from Refinitiv.
People shopping at a Costco store
But it missed on revenue, tallying $37.04 billion in the quarter ending Nov. 24. Wall Street projected revenues of $37.25 billion.
Costco's quarter was hit by a slowing number of people shopping on its website, which also had an outage during the quarter, Cramer said.
"Of course nothing's perfect," he said.
While some may knock Costco for its online offerings not matching the growth of rivals such as Walmart or Target, Cramer said he was less concerned about that.
"Ultimately, they're going to figure it out," he said.
"What matters to me is that Costco's business model works perfectly in a trade war," Cramer said, adding Shanghai is where that model works best.
Part of that was due to strong and creative management, he said, arguing Costco's scale has allowed it to mitigate impact from tariffs through sourcing strategies.
Some of those tariffs will be reduced — and the ones set for Sunday canceled — as part of a phase one deal that Washington and Beijing agreed to in principle on Friday.
But in the months preceding the deal, Costco's strength also shows how tariffs from the trade dispute have been less detrimental to the American consumer than some predicted, the host said.
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