Costco's Surprisingly Strong June Comp Signals High Member Loyalty And Effective Strategy, Says Analyst

Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating on the shares of Costco Wholesale Corporation COST and raised the price target from $540 to $575.

Costco reported a better-than-expected June comp of (1.4%) versus the analyst's forecast of (2.0%), despite an estimated negative impact of a little less than 50 basis points due to one fewer pre-July 4 shopping day in the month than last year.

In June, total traffic increased 4.2% (U.S. +3.6%), while the average ticket fell 5.4% due to soft sales in big ticket products, like furniture, said the analyst.

Costco's digital business is skewed toward discretionary categories, such as electronics and furniture, which were soft in this tough economic environment.

Food & Sundries and Fresh Foods performance were both helped by increased at-home consumption, strong value, and inflation.

The analyst projects a July comp of 4.5% vs. 10.0% last year. The analyst estimates a gas and FX net headwind of 270 basis points, assuming the latest prices and rates.

The analyst raised 4Q23 comparable sales estimate to 1.7% from 1.0%, given the May comp of (-0.3%) and better-than-anticipated June comparable sales of (-1.4%).

Costco's better-than-anticipated June comp reflects good execution and its value appeal to a cost-conscious consumer, said the analyst.

The analyst expects Costco to remain a share gainer, with its value-focused merchandising and high member loyalty.

Price Action: COST shares are trading lower by 1.33% at $530.21 on the last check Friday.