Costco Stock Plummets to Nearly Two-Year Low on Quarterly Revenue Shortfall
Costco shares closed down 7.6% on Friday, marking its worst day since May 2022, after the membership-only retail giant missed second-quarter revenue expectations and signaled a negative impact from lower gasoline prices. Despite the dip in share value, at least seven brokerages raised their price targets on Costco, indicating confidence in the company’s long-term prospects.
Jefferies raised its price target to $905, following Costco’s second-quarter revenue of $58.44 billion, reflecting a 6% increase. However, this figure fell short of the London Stock Exchange Group (LSEG) estimates, which anticipated revenue to reach $59.16 billion.
Lower gasoline prices had a negative impact on Costco’s revenue, as highlighted by the outgoing CFO, Richard Gallanti. Gasoline price deflation negatively affected total reported comparable sales, with the average worldwide selling price per gallon of gas down approximately 3.5% compared to the previous year.
Telsey Advisory Group analyst Joseph Feldman noted that Costco’s stock had experienced a strong run leading up to the earnings report. He explained that it is not uncommon for Costco’s stock to sell off on financial news and recover within a few weeks.
In recent quarters, Costco faced declining demand for higher-margin goods such as appliances, home furnishings, and electronics. This trend reflected a broader slowdown in U.S. retail sales, which fell the most in ten months in January as consumers remained cautious in the early part of 2024.
However, Costco’s comparable sales, excluding fuel and currency fluctuations, saw a 5.8% increase. This growth was attributed to strong appliance sales and the company’s efforts to lower prices on select products, appealing to cost-conscious consumers.
While the stock experienced a temporary setback, analysts emphasized the underlying strength of Costco’s same-store sales, citing robust traffic and a positive sign of the company’s health as a retailer. Brokerages believe Costco is well-positioned to attract customers in an uncertain environment, supported by solid demand, membership fees, and competitive pricing strategies.
Costco shares closed at $725.56, and the median price target, according to LSEG data, is $780. Despite the recent dip, brokerages’ positive outlook suggests confidence in the company’s ability to drive revenue growth in the future.
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