Costco-size purchase for Buffett: His Berkshire group buys 24 million shares
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WASHINGTON - Warren Buffett and Charles Munger made good on their long-spoken admiration of Costco Wholesale, purchasing almost 24 million shares of the Issaquah retailer last year.
Berkshire Hathaway, the closely watched investment-holding company run by Buffett and Munger, bought most of the stock during the second quarter of last year, according to a regulatory filing. That was when shares of Costco, the nation's largest wholesale-club retailer, fell 37 percent.
Costco has received accolades from both Munger and Buffett during Berkshire's last several annual meetings, according to attendees. Munger, Berkshire's vice chairman, has served on Costco's board since January 1997 and also shops at the wholesale stores, said Richard Galanti, Costco's chief financial officer.
Munger "probably has as good a knowledge of Costco as anybody who lives," said Tony Russ, portfolio manager for Fairholme Capital Management, a New Jersey money manager that had 38 percent of its $636 million stock portfolio invested in Berkshire as of Dec. 31.
Berkshire, based in Omaha, Neb., has long held a token stake in Costco. As recently as March 31, 2000, the insurance holding company owned 710,000 Costco common shares.
Berkshire disclosed in a filing yesterday with the Securities and Exchange Commission (SEC), though, that its stake increased to 21.5 million shares on June 30 and 24.1 million shares - with a current market value of almost $872 million - as of Sept. 30. Those shares represent about 5.4 percent of the 450 million shares Costco reported having outstanding as of March 16.
Costco has seen sales increase at a compounded annual rate exceeding 10 percent for the five years ended Sept. 3, the company's most recent fiscal year. Annual earnings growth has been above 20 percent during this time, Galanti said.
Meanwhile, Costco shares had increased sixfold between September 1995 and April 2000, making them pricey for bargain hunters such as Munger and Berkshire's chairman, Buffett.
The stock began declining last April and the fall accelerated on May 24, when Costco said quarterly earnings missed forecasts for the first time since 1995.
Buffett has often taken advantage of an SEC procedure that lets money managers delay for more than a year the disclosure of holdings if they can show the stakes are part of a proprietary trading strategy.
However, in recent years the SEC has given Buffett less leeway in keeping stakes private, forcing Berkshire to disclose holdings before the confidentiality period elapsed.
Berkshire also filed an amended document with the SEC for the quarter ended Dec. 31 that didn't list any Costco holdings. An interpretation could be that Berkshire sold its Costco stake during the fourth quarter.
Buffett followers said it was more likely Berkshire continued to hold the Costco shares and was still negotiating with the SEC over disclosure of the stake for the end of the year.
"It would be very unlike him (Buffett) to take a huge position and then trade" it away several months later, said Russ.