Costco (COST) shares dip despite earnings beat. We see no cause for concern
Costco Wholesale ‘s third-quarter earnings topped Wall Street expectations on Thursday, driven by higher sales and lower-than-expected operating expenses. Even with a recent C-Suite transition, Costco delivered a business-as-usual quarter, as members flocked to its warehouses in search of quality merchandise at value prices. Total revenue in its fiscal 2024 third quarter increased 9.1% year over year to $58.52 billion, beating analysts’ expectations of $58.07 billion, according to estimates compiled by LSEG. Earnings per share in the three months ended May 12 totaled $3.78, beating analysts’ forecasts of $3.70, LSEG data showed. On an annual basis, Costco’s EPS grew 29%. After closing at a record $815.34 per share Thursday, Costco’s stock declined about 1.5% in extended trading. We’re pinning the slight pullback to the stock’s historical trading pattern of profit-taking immediately following earnings. The stock had rallied 23.5% year to date through Thursday’s regular session. Costco Wholesale Why we own it: Costco is the best-run retailer in the world, with a business model focused on offering its members a relatively small universe of products at hard-to-beat prices. Costco has succeeded for decades, but the high inflation of recent years has made the company’s value-focused ethos really shine. A potential bump in membership fees is one catalyst still on the horizon for the stock. Competitors: BJ’s Wholesale , Walmart and fellow Club holding Amazon Last buy: June 15, 2020 Initiation date: Jan. 27, 2020 Bottom line Costco delivered a quality quarter with not much to pick at. The company continues to post impressive comparable sales growth for a company of its size — a sign of market share gains in a volatile retail environment. In addition, it was great to hear from both new CEO Ron Vachris and CFO Gary Millerchip on what they deem areas of opportunities, such as investing in technology; online orders for in-store pickup; and monetizing retail media, a term used to describe retailers’ advertising businesses. Vachris took over the top job in January. Millerchip became finance chief in mid-March. Sure, Costco didn’t announce a membership fee hike Thursday, and the stock may get dinged on that. That’s proven to be a far more elusive catalyst than the special cash dividend that hit a couple of quarters ago . But Costco is running at such a high level with competitive prices that it doesn’t need raise fees just yet. And perhaps there was some speculation that Costco would announce a stock split because that’s come back in fashion on Wall Street, but the quietness here is not thesis-changing. Instead, we continue to see Costco has a company that will grow earnings and reinvest those profits back in the business to capture more market share and grow its footprint around the world. As a result, we are increasing our price target to $875 a share from $800, but keeping our 2 rating, meaning we continue to view pullbacks as the buying opportunity….
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