Shares of Costco Wholesale Corporation (COST), a membership-based warehouse retailer, are up over 34% year-to-date. Moreover, COST stock has gained about 57% over the past year. While Costco stock has already gained significantly, reaching $1,000 in value in 2024 doesn’t seem out of the question, especially as its value proposition continues to resonate well with consumers.
Let’s dig deeper to understand why Costco stock could continue to trend higher.
Costco’s Revenue Growth Outlook
Costco recently released its fiscal Q4 financial results. While the stock dipped on the news due to missing Wall Street’s revenue expectations, the company’s overall performance remains strong, and it’s well-positioned for future growth.
The warehouse giant reported total sales of $79.7 billion in Q4, reflecting a 1% year-over-year increase. However, total revenue fell slightly below consensus expectations. This shortfall can be attributed to currency fluctuations that impacted membership fee income, which remained flat.
However, Costco’s comparable sales grew by 6.9%, exceeding Wall Street forecasts. The company reported an increase in shopper traffic, with global visits up 6.4% and U.S. traffic rising by 5.6%. This growth highlights the retailer’s appeal through competitive pricing and convenience.
Costco’s Q4 bottom line also impressed. Its earnings per share (EPS) of $5.29 increased 8% year-over-year, and surpassed Wall Street’s expectations.
Looking ahead, Costco’s revenue is expected to remain strong, led by several factors:
- Strong Membership Base: Costco’s membership renewal rates remain robust. By the end of Q4, its renewal rate in the U.S. and Canada was an impressive 92.9%, while its global rate was 90.5%. This demonstrates Costco’s ability to retain its customer base, even in challenging economic environments and with tough year-over-year comparables.
- Growing Paid Members: Costco ended Q4 with 76.2 million paid household members, a 7.3% increase year-over-year. Executive memberships, which offer added perks, grew even faster at 9.6%. Executive members now account for 46.5% of all paid memberships, contributing 73.5% of worldwide sales. This loyal, growing customer base provides a steady revenue stream and enhances Costco’s long-term stability.
- Membership Fee Increase: Costco recently announced an increase in membership fees, which has historically boosted earnings and stock performance. While the fee hike, which took effect on Sept. 1, will have minimal impact early in the year, most of the benefits will be realized in the second half of fiscal 2025 and into 2026, further strengthening Costco's financial outlook.
- Warehouse Expansion: The company continues to expand its warehouse locations, offering more convenient shopping options, which should further drive traffic and sales.
In summary, Costco’s growing membership, high renewal rates, expanding footprint, and recent fee increase position it for continued strong sales growth and profitability in the years to come.
Digital and E-commerce Momentum
Costco’s e-commerce business is another bright spot. In Q4, e-commerce traffic, conversion rates, and average order values all increased, contributing to strong comparable sales growth. Several categories, such as health and beauty products, appliances, tires, toys, and housewares, all notched double-digit growth year over year.
As Costco strengthens its digital capabilities, the company rolled out the “buy online, pick up in-store” option for high-ticket items like TVs. This program has been successful in reducing shipping costs and improving customer convenience. Costco is now testing this model for laptops and other high-value items.
Additionally, Costco’s logistics operations are growing, particularly in handling large and bulky items like appliances and furniture, which have been key drivers of e-commerce growth. Over 4.5 million items were delivered through Costco Logistics in the past year, marking a 29% increase. With continued improvements in delivery times and order scheduling, Costco is set to further enhance its online shopping experience.
Can Costco Stock Reach $1,000?
With a solid business model, a loyal customer base, and growing e-commerce capabilities, Costco is well-positioned for continued growth in 2024. The company’s value pricing, disciplined approach to store expansion, and focus on operational efficiency will drive its earnings and support its share price.
Though the stock needs to rise by around 13% to hit the $1,000 mark, Costco’s strong financial performance and growth strategy make this a realistic target. While some analysts remain cautious due to its premium valuation compared to its peers, COST's high valuation is justified, given its solid growth prospects and ability to deliver higher comparable sales.
Analysts rate Costco a “Moderate Buy,” with an average price target of $914.47, suggesting only 3.3% expected upside from Friday's close. However, with Costco continuing to execute well on its growth strategy, the $1,000 milestone could be within reach in 2024.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
