Wed. Jul 17th, 2024

Retail giant Costco Wholesale Corp. is riding a wave of strong traffic and membership growth that position the company well for 2024, say analysts.

Costco
COST,
+4.45%

reported fiscal first-quarter earnings and revenue largely in line with expectations after market close on Thursday, and also announced a special dividend of $15 a share.

In addition to store traffic, the company’s sales of gold bars are attracting attention in the wake of its results. “Looking ahead, COST’s strong value offering, high renewal rates, and club expansion plans make COST well-positioned, in our view,” Jefferies analyst Corey Tarlowe wrote in a note. “In store, we would note that traffic grew (up 4.7% and 3.6%, worldwide and in the U.S., respectively) and mgmt highlighted plenty of items that sold well throughout the quarter, including ~$100M of revenue in Gold Bars and >4M Holiday Pies sold.” Jefferies raised its Costco price target to $725 from $680 and reiterated its buy rating for the company.

Related: Costco starting to see some prices come down, but not for food

The 1-ounce, 24-karat gold bars are Swiss-made and have reportedly been selling out.

Holiday pies were also mentioned during the conference call to discuss Costco’s results. Costco CFO Richard Galanti said that the company sold 2.9 million pumpkin pies and 1.3 million apple and pecan pies in the three days leading up to Thanksgiving. The pumpkin pie was priced at $5.99, according to reports.

Strong member trends during the quarter bode well for Costco as it enters 2024, according to Raymond James. “U.S. and global traffic remains consistently positive and total members and members per average club open are growing nicely,” wrote Raymond James analyst Bobby Griffin, in a note released Friday. “In addition, we continue to see the potential for a decade plus of new U.S. and international club openings (~30 openings estimated for FY24).” Raymond James raised its Costco price target to $670 and reaffirmed its outperform rating for the retailer.

Related: Costco’s 24-carat gold bars are priced at about $1,930 — and reportedly selling out. Should you buy these, or gold in general, right now?

Revenue from Costco’s membership fees was $1.082 billion during the quarter, up from $1 billion in the same period last year. The company ended the quarter with 72 million paid household members, up 7.6% against the year-ago period, and 129.5 million cardholders, a year-over-year increase of 7.1%.

At the end of the quarter, Costco’s U.S. and Canada renewal rate was 92.8%, and the worldwide renewal rate was 90.5%. Both rates were up 0.1% from the prior quarter.

Costco shares rose more than 3% after the opening bell. The company’s stock is up 41.9% in 2023, outpacing the S&P 500 index’s
SPX
gain of 22.8%.

Related: Costco membership-fee hike is coming

The strength of the company’s business model was also highlighted by BMO Capital Markets. “Given Costco’s uniquely positioned business model that continues to demonstrate consistency along with its extreme value positioning relative to peers, we are raising our target price to $700 using peak-historical valuation,” wrote BMO Capital Markets analyst Kelly Bania, in a note released Thursday. “We continue to believe there is no bad time to buy Costco, only better times.” BMO Capital Markets has an outperform rating for Costco.

However, Thursday’s Costco earnings release did not include any news on a potential increase in the company’s membership fee. In September Galanti said that price hikes are coming for Costco memberships.

Galanti was asked about the potential membership increase during the conference call to discuss the company’s results Thursday, but did not provide a timeframe. “It’s a question of when, not if,” he said, reiterating his comments from September. “But at this juncture, we feel pretty good about what we’re doing.”

Related: Costco’s 1-ounce gold bars selling out ‘within a few hours’ — again

Of 39 analysts surveyed by FactSet, 25 have an overweight or buy rating, 12 have a hold rating, and two have an underweight rating for Costco.

Claudia Assis and Rachel Koning Beals contributed.

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