Written by Ananya Maryam Rajesh
(Reuters) – Costco shares closed 7.6% lower on Friday on their worst day since May 2022 after the membership-only retail chain missed second-quarter revenue expectations and cited a negative impact from lower gasoline prices.
However, at least seven brokerages raised their price targets on Costco, with Jefferies raising the largest amount to $905 after the retailer's second-quarter revenue rose 6% to $58.44 billion, but came in short of LSEG's estimate of $59.16 billion.
“The deflation in gasoline prices negatively impacted the companies' overall reported sales…the global average selling price per gallon of gas declined approximately 3.5% compared to last year,” said Richard Galanti, Costco's outgoing CFO.
“The stock has had a very strong performance in the earnings print, and so we see this a lot with Costco where … the stock will sell off on the financial news and then recover in a few weeks or something like that,” Tilsey Advisory Group analyst Joseph Feldman said.
Over the past few quarters, Costco has seen a decline in demand for higher-margin items such as appliances, home furnishings and electronics. US retail sales fell by the most in 10 months in January, as customers remained cautious heading into 2024.
However, comparable sales, excluding fuel and currency fluctuations, saw a 5.8% increase, benefiting from strong appliance sales and retailers' efforts to lower prices on select products, attracting consumers looking to shop at a reasonable price.
“Their core same-store sales are very strong, and they're getting very good traffic into stores, which is the biggest sign of health as a retailer,” Feldman added.
Brokerage firms believe the retailer is able to attract customers in an uncertain environment and drive revenue growth through strong demand, membership fees and lower prices.
Costco shares closed at $725.56 and the average price target is $780, according to LSEG data.
(Reporting by Ananya Maryam Rajesh in Bengaluru; Editing by Tasim Zahid and Alan Barona)
