yWhile Target (TGT) and Dollar Tree (DLTR) warned of a pressured economy, Costco’s (COST) August sales surprised analysts.
The retailer posted August sales results on Sept. 5, reporting that global net sales grew 7.1% to $19.83 billion for the four weeks ended Sept. 1. U.S. sales increased 6.7%, “double the rate of overall U.S. retail sales,” according to an Evercore ISI analyst.
Costco currently runs 890 warehouses worldwide, with more than two-thirds — 614 — located in the U.S. It also operates e-commerce sites, sales from which grew 23.3% in August.
Related: Costco makes major change to stop membership sharing
Warren Buffett’s late right-hand man, Charlie Munger, called Costco one of his favorite stocks. Munger, who passed away in November 2023, said last year at the Daily Journal’s annual shareholders meeting that he was “a total addict” to the stock and was “never going to sell.”
But Munger also warned of Costco’s expensive price-earnings multiple. “The trouble with Costco is it’s 40 times earnings. But except for that, it’s a perfect damn company,” he said. (Yahoo Finance pegs the current forward p/e multiple at 50.76.)
ArnoldReinhold, CC-BY-SA-4.0 via Wikimedia Commons
Will Costco beat earnings estimates again?
Costco offers members quality products at discounts in exchange for its annual membership fees, which provide the Issaquah, Wash., chain with a stable revenue stream.
On Sept. 1 Costco raised membership fees in the U.S. and Canada. Gold, Business, and Business add-on memberships increased $5 to $65 annually, while Executive Memberships went up to $130 from $120. The maximum annual 2% cash back for Executive Members also increased, to $1,250 from $1,000.
Related: Your Costco membership is officially more expensive
For the quarter ended May 12 Costco earned $3.78 a share, topping the $3.70 analyst consensus estimate. It reported net sales of $58.52 billion, compared with estimates of $57.98 billion.
Costco said in May that members were more confident and increasingly willing to spend on discretionary items rather than just necessities.
"We're definitely winning in consumables, as we see the food business and dining away from home has softened up a bit," Chief Executive Ron Vachris said on a call with investors in May, “Sporting goods, toys, furnishings, domestics, all those categories are really coming on very strong now.”
Oppenheimer analyst Rupesh Parikh notes “a meaningful improvement” in Costco’s nonfood-category trends, driven by merchandising efforts such as discounted gift cards, according to a Sept. 6 note from thefly.com.
Oppenheimer raised its price target on Costco to $955 from $925 and maintained an outperform rating. The analyst expects strong sales momentum to continue throughout the year.
Costco is set to post its fiscal Q4 earnings results on Sept. 26.
Analysts revamp Costco stock price targets after August sales
Loop Capital analyst Laura Champine raised Costco’s price target to $975 from $970 and affirmed a buy rating. “The company announced outsized international core [same-store-sales] growth in August, with 11% growth compared to Loop's 9% estimate,” the analyst told investors in a note on Sept. 6.
Loop remains positive on Costco stock, stating that lower price points drive traffic, thefly.com reported.
Morgan Stanley analyst Simeon Gutman raised Costco's price target to $950 from $855 and maintained an overweight rating. The analyst recognizes that Costco’s current p/e multiple of 50 times is high but is achievable for the “best-in-class” retailer because its growth drivers are durable.
“Both historical performance as well as the firm's view of the future of retail point to further upside,” the analyst told investors on Sept. 9.
Evercore ISI raised Costco’s price target to $925 from $915 and kept an outperform rating.
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Costco’s 7.1% global sales growth in August is slightly faster than recent trends, and its 6.7% U.S. sales growth is double the rate of overall U.S. retail sales, according to the analyst.
The analyst also said the retailer is “showing positive momentum into the September fee hike." While the stock is "not cheap," the analyst says, the premium is justified by market-share gains, traffic, and fee-increase tailwinds.
Related: Veteran fund manager sees world of pain coming for stocks
