Shares of Costco (NASDAQ:COST) plummeted over 7% on Friday, marking the worst performance in nearly two years for the membership-only retail giant. This downturn follows Costco’s failure to meet second-quarter revenue expectations, coupled with indications of a negative impact stemming from lower gasoline prices.
Despite the disappointing revenue figures, at least seven brokerages have raised their price targets on Costco. Jefferies led the pack, setting a new target of $905. Costco reported a 6% increase in second-quarter revenue, reaching $58.44 billion. However, this figure fell short of LSEG estimates, which projected revenue at $59.16 billion.
Costco’s outgoing CFO, Richard Gallanti, highlighted the adverse effects of gasoline price deflation on total reported comp sales. He noted a decrease of approximately 3.5% in the average worldwide selling price per gallon of gas compared to the previous year.
Analyst Joseph Feldman from Telsey Advisory Group observed that Costco often experiences a temporary sell-off in response to financial news, only to rebound shortly afterward. He attributed this pattern to the stock’s strong performance leading up to earnings announcements.
In addition to gasoline price deflation, Costco has witnessed a decline in demand for higher-margin items such as appliances and electronics. This decline mirrors the broader trend of cautious consumer spending, with U.S. retail sales experiencing their most significant drop in 10 months in January 2024.
However, despite these challenges, Costco’s comparable sales, excluding fuel and currency fluctuations, saw a robust 5.8% increase. The retailer’s strategy of lowering prices on select products has attracted price-conscious consumers, contributing to strong foot traffic in its stores.
Brokerages remain optimistic about Costco’s ability to navigate the uncertain economic environment. They believe that Costco’s strong demand, membership fees, and competitive pricing will continue to drive revenue growth.
As of the latest data from LSEG, Costco shares were trading at $728.80, with a median price target of $780. Despite the current setback, analysts maintain confidence in Costco’s long-term prospects.
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Author Faith Yakubu 
