Bengaluru, India – Costco faced a significant drop in its shares, closing down 7.6% on Friday, marking its worst day since May 2022. This decline came after the membership-only retail chain missed revenue expectations for the second quarter and indicated a negative impact from lower gasoline prices. Despite this setback, Costco saw at least seven brokerages raising their price target on the company, with Jefferies leading the pack by raising their target to $905.
Costco’s second-quarter revenue increased by 6% to $58.44 billion, but it fell short of estimates, signaling struggles due to lower gas prices. The average selling price per gallon of gas decreased by approximately 3.5% compared to the previous year, affecting total reported comp sales, as noted by Costco’s outgoing CFO, Richard Gallanti. Analysts like Joseph Feldman from Telsey Advisory Group observed that Costco tends to experience a sell-off on financial news but often recovers within a few weeks after.
For multiple quarters, Costco has witnessed a decline in demand for higher-margin products like appliances, home furnishings, and electronics. U.S. retail sales plummeted significantly in January, indicating cautious consumer behavior heading into 2024. However, when excluding fuel and currency fluctuations, comparable sales showed a 5.8% increase, boosted by strong appliance sales and the retailer’s strategy of lowering prices on select products to attract budget-conscious shoppers.
Analysts continue to have faith in Costco’s ability to draw in customers even in uncertain economic times. The company’s strong demand, membership fees, and competitive pricing strategies are expected to drive revenue growth in the future. Despite the drop in shares, Costco closed at $725.56, with a median price target of $780 according to LSEG data. Costco’s solid same-store sales performance and high store traffic are seen as positive indicators of the company’s retail health, as highlighted by analysts like Joseph Feldman.
In conclusion, Costco’s recent challenges with revenue expectations and gas price impacts have not dampened the confidence of analysts in the company’s ability to navigate through uncertain economic conditions and maintain strong performance. The retail giant’s strategic initiatives and strong customer base continue to position it as a key player in the industry.