• by Sarah Mahoney  @mahoney_sarah, December 9, 2015

Costco says sales for its fiscal first quarter inched up 1% to $26.63 billion, from $26.28 billion a year ago. And excluding the negative impact of gas price deflation and foreign currency, comparable sales rose 6%. Net income fell, however, to $480 million from $496 million a year ago.

The results were below analysts’ expectations.

In a tough environment for retailers, Costco is standing out for “traffic consistency, a steady income stream through membership, international growth opportunities, and, importantly, an Amazon-proof business model,” writes Paul Trussell, an analyst who follows the company for Deutsche Bank, who recently upgraded the stock to a buy. Powered by growing demand for fresh, organic foods and lower gas prices, he writes that the members are still loving Costco’s unexpected offerings, which gives it an appeal other retailers — online or off — don’t typically have. “We think that the gas and food offering combined with the in-store treasure hunt experience provide a powerful competitive advantage that can continue to fend off online competitors such as Amazon and Jet,” he writes.

He also expects a switch to co-branded Visa cards from American Express next spring should benefit the company, with fee savings funneled into its improved rewards programs.

Organic foods are also an increasingly important part of Costco’s appeal: It recently introduced fresh-ground organic beef, boosting basket size among members who had never bought ground beef from the club before, adding incremental sales at higher margins. And fresh foods sales continue to drive frequency of shopping trips.

While margins are inherently thin in Costco’s business model, it gets 75% of operating profits from membership fees, with shoppers renewing them 90% of the time, writes Morningstar in a recent report. “We believe Costco possesses a cost advantage that in turn supports a brand intangible asset,” it says, with  “competitive advantages worthy of a wide economic moat.” Even though it has fewer stores than competitors like Wal-Mart, “this sales base equates to more than $1,100 in sales per square foot, a level that is unrivaled among mass merchants and other defensive retailers. By comparison, Wal-Mart's U.S. and Sam's Club segments generate roughly $400 and $680 per square foot, respectively.”

Still, Costco isn't without risks, it says. With its 80 million members, there may be little room for more household penetration: “Historical sales and earnings growth forecasts may not be sustainable.”