Costco's business model is showing major weakness for the first time in years

Costco has been one of the most reliably successful businesses on the market for most of the last 30 years. However, on Wednesday, the company reported its second straight quarter of earnings decline.

While sales increased 3% in the second quarter, profit declined 8.7%, reaching $546 million, down from $598 million last year.

Total sales reached $28.42 billion, falling short of forecasts for $28.42 billion.

In recent quarters, Costco’s performance has been negatively impacted by currency fluctuations and lower fuel prices, as well as a rise in merchandise costs and overhead expenses. The discount retailer’s split from American Express and upcoming switch to Visa credit cards has additionally led to decreased profit in the short term.

Despite this, analysts have recently applauded Costco’s business model.

Costco “operates one of the best business models in our space,” Morgan Stanley analysts wrote in a recent research note. According to the analysts, the retail giant succeeds by offering customers low costs with minimal mark ups, and providing “differentiated and high quality” products.

In December, Deutsche Bank’s Paul Trussell upgraded the company’s rating from hold to buy, calling the company “Amazon-proof,” thanks to Costco’s membership model and ability to incentivise visits to brick-and-mortar locations.

Costco has assets that retail competitors from Walmart to Amazon lack. However, due to the impact that gas prices and currency fluctuations have on the company, these advantages haven’t been enough to drive growth at the retail giant in 2016.

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