Following an impressive Q1 earnings report, Costco Wholesale (NASDAQ:COST) experienced a surge in its stock price, propelled further by the announcement of a special dividend. The company’s stock rebounded on Friday after a slight retreat from record highs during Thursday’s trading session.
Costco outperformed expectations by reporting a 16.6% increase in earnings, reaching $3.58 per share, and a 6.2% growth in revenue, totaling $57.8 billion. Analysts from FactSet had anticipated an 11% earnings growth to $3.41 per share on $57.79 billion in revenue.
Key financial metrics included a 6.2% rise in net sales to $56.72 billion, an 8.2% increase in membership fee revenue to $1.08 billion, and a 3.9% growth in adjusted comparable sales companywide, excluding gas prices and foreign exchange impacts. E-commerce comparable sales experienced a notable 6.1% increase. Notably, U.S. comparable sales rose by 2.6%, slightly trailing the 8.2% increase in Canada and the 7.1% gain internationally.
Costco concluded the quarter with 72 million paid household members, a 7.6% increase from the previous year, and a 7.1% growth in Costco cardholders to 129.5 million.
During the earnings call, executives highlighted reduced prices for larger items like furniture and TVs, attributed to lower freight costs. However, food prices had not seen a corresponding decrease. Online sales of various items, including food, gift cards, pet products, snacks, and appliances, showed impressive year-over-year growth.
Additionally, Cyber Week sales saw a significant uptick in the mid-teens range compared to the previous year.
In a move that pleased investors, Costco’s board declared a special cash dividend of $15 per share for those holding COST stock as of Dec. 28, 2023. The dividend, totaling around $6.7 billion, is scheduled for payment on Jan. 12.
Costco has reported double-digit earnings growth for the past three quarters, with revenue growth ranging from low to upper single digits. Analysts responded to these positive results by adjusting their price targets for COST stock.
Truist raised its price target to $693 from $619, emphasizing Costco’s solid sales growth driven by lower-margin consumables. UBS increased its price target by $85 to $725, highlighting Costco’s resilience and strong performance irrespective of the macroeconomic environment. Jefferies also raised its price target to $725 from $680, citing Costco’s robust value proposition, high renewal rates, and expansion plans.
Despite a 1.8% dip on Thursday, Costco stock climbed over 4% on Friday, marking a 46% increase for the year. The stock remains extended above a buy zone for the pattern, surpassing its previous all-time high from April 7, 2022.
Featured Image: Unsplash @ Grant Beirute
