Costco Wholesale Analyst Sees Multi-Year Opportunity For Further Growth; Remains Buyer Of COST

  • Raymond James analyst Bobby Griffin reiterated an Outperform rating on the shares of Costco Wholesale Corporation COST and raised the price target from $560 to $570.
  • Excluding the impacts from changes in gasoline prices and FX, consolidated comparable sales increased 5.3% y/y in November.
  • Management noted that inflation tailwinds for food/sundries were consistent with October, while fresh food inflation increased slightly y/y more versus October, the analyst noted.
  • For November, U.S. comparable sales increased 4.6%, Canada comparable sales increased 6.6%, and other international comparable sales increased 8.3%.
  • Excluding the impact from foreign exchange, food and sundries comparable sales in November increased low double-digits with cooler, sundries, and food leading the way. 
  • Fresh food comparable sales increased mid single-digits in November, with strength in bakery and produce.
  • On the other hand, non-food category decreased low single-digits with worst performing categories including consumer electronics, jewelry, and hardware.
  • The decrease, Griffin believes, is due to difficult compares, inflation pressures on the U.S. consumer impacting discretionary demand, and potentially consumers shifting their holiday spend this year towards later in the season.
  • Costco's comparable sales results during Q1 support the analyst's thesis that its product mix, clean balance sheet, and sticky customer base position it well to continue to gain market share. 
  • The consistent global store traffic, coupled with elevated ticket levels, reinforce the value Costco offers its members and Griffin's view that the membership model is still the most attractive business model in hardline retail today. 
  • While the cost environment remains challenging on margins, Costco's low SKU count (less than 4,000 SKUs; less discounting risk versus peers) and consistent revenue growth should continue to result in solid EBIT/EPS growth.
  • Also Read: Walmart, Costco Are Black Friday Winners While Target Sees Light In-Store Traffic
  • Price Action: COST shares are trading lower by 6.20% at $505.79 on the last check Thursday.
  • Photo Via Wikimedia Commons
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