On Friday, Barclays (LON:BARC) adjusted its outlook on Costco Wholesale (NASDAQ: NASDAQ:COST) shares, increasing the price target to $765 from the previous $700 while maintaining an Equalweight rating on the stock.
The firm recognized the underlying momentum in Costco's business, highlighting the expansion with 23 new clubs planned to open in the US this year, a significant increase from the 13 new clubs opened annually over the last three years. The new clubs are expected to contribute to more frequent shopping visits and higher membership renewal rates.
Costco's comparable store growth has surpassed expectations, with a 6% increase in the US excluding fuel, compared to the consensus of 5.5%, and a total company growth of 6.5% excluding fuel and foreign exchange impacts, above the consensus of 5.9%. Traffic rose by 6.1%, and the average ticket size grew by 0.5%.
Notably, the non-foods category showed the highest comparable growth, reflecting market share gains in various segments such as toys, tires, lawn & garden, health & beauty aids, home furnishing, and decor.
The improvement in Costco's digital sales, which saw a 20.7% increase, was supported by Costco Logistics, which experienced a 28% increase in deliveries for the quarter. This enhancement has particularly benefited the sale of big-ticket items like appliances.
Gross margin improved by 52 basis points year-over-year but was slightly below expectations mainly due to lower gas margins as fuel costs rose. Despite this, the company has no intention to shift from its acknowledged margin ceiling of 14-15%.
Costco's selling, general, and administrative (SG&A) expenses were consistent with consensus estimates, but the rate was better than expected due to stronger sales. There is potential to further reduce the SG&A rate below 9% of sales.
This financial performance reflects Costco's ability to navigate market challenges while investing in growth avenues such as retail media and marketplace businesses, which are still in their early stages.
InvestingPro Insights
As Costco continues to show robust performance and strategic expansion, real-time metrics from InvestingPro provide a deeper look into the company's financial health and market position. With a market capitalization of $361.61 billion and a high P/E ratio of 53.48, Costco is trading at premium valuations, reflective of its strong market presence and investor confidence. The company's revenue growth remains solid, with a 6.16% increase over the last twelve months as of Q1 2023, supporting the expansion narrative outlined by Barclays.
From an investment standpoint, two InvestingPro Tips are particularly relevant. Firstly, Costco holds more cash than debt on its balance sheet, providing financial stability and room for further growth initiatives. Secondly, analysts have revised their earnings upwards for the upcoming period, signaling positive sentiment and potential for continued strong performance. These factors, combined with Costco's 21-year track record of maintaining dividend payments, underscore the company's resilience and appeal to long-term investors.
For those looking to delve deeper into Costco's financials and market potential, there are over 19 additional InvestingPro Tips available at https://www.investing.com/pro/COST. Readers can also take advantage of an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of investment insights and data.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.