Costco Wholesale Q2 Financials: Mixed Results in Face of Retail Uncertainty
On Thursday, March 2nd, U.S. retail warehouse giant Costco Wholesale Corporation (COST) reported its operating results for the second quarter (twelve weeks) and the first 24 weeks of fiscal 2023, which ended on Feb. 12. The report included net sales of $54.24 billion, with comparable sales rising 6.8% after adjusting for gasoline prices and foreign exchange impacts. The quarter saw a net income of $1,466 million, resulting in a diluted share of $3.30. This marked the company’s weakest sales growth in more than three years and was in line with warnings earlier this month from Amazon, Walmart, and Home Depot, all of which foresee slowing growth and uncertainty in coming months.
Membership fees represented $1.03 billion of the company’s second-quarter total, a 6.2% increase from a year ago and a tick higher than Wall Street estimates of $1.04 billion. Net sales for the reporting month of February increased 4.7% year-over-year to $17.06 billion.
Analysts from Wall Street have given Costco stock 16 Buy and seven Hold ratings, giving it a Moderate Buy consensus. Analysts have an average 12-month price target of $559, representing a potential upside of 15.45%. My rating for Costco is to Buy. Costco's stock price outlook looks favorable, as the potential for an earnings beat could result in a rise in their stock price and valuations.
The weakness in sales growth is a reflection of rising living costs forcing consumers to be more selective about their spending habits. Furthermore, e-commerce sales have been weak, declining 8.7% from last year's holiday quarter and 11.2% in February. Despite inflation and declining sales, the CEO of Costco has emphatically declared that the well-known hot dog and soda combo will remain at its current cost of $1.50. The price of the meal has remained unchanged since 1985.
Overall, investors should be cautiously optimistic as Costco’s mixed second quarter financial report is likely to reinforce retail uncertainty. The company’s stock price in the past few months has reflected investors' uncertainty about the retail sector's prospects, and this would mark the seventh straight quarter in which Costco’s sales growth fails to keep up with past performance.
0. “Costco Keeps Costs Low For Its Members, But Can Q2 Earnings Boost Share Prices For Its Stockholders? What” Benzinga, 2 Mar. 2023, https://www.benzinga.com/news/earnings/23/03/31176497/costco-keeps-costs-low-for-its-members-but-can-q2-earnings-boost-share-prices-for-its-stockholders-
1. “Costco Q2 Net Sales Rise 6.5% as Shopper Frequency Remains Elevated” Progressive Grocer, 3 Mar. 2023, https://www.progressivegrocer.com/costco-q2-net-sales-rise-65-shopper-frequency-remains-elevated
2. “Costco Q2 earnings: Stock slips after mixed results” Yahoo News, 2 Mar. 2023, https://news.yahoo.com/costco-q2-earnings-preview-potential-membership-fee-increase-inflation-in-focus-152034622.html
3. “Costco’s sales growth tapers off in second quarter” Winsight Grocery Business, 3 Mar. 2023, https://www.winsightgrocerybusiness.com/retailers/costcos-sales-growth-tapers-second-quarter
4. “Costco Reporting Q2 Today: Here’s What’s in Store” TipRanks, 1 Mar. 2023, https://www.tipranks.com/news/article/costco-nasdaqcost-to-report-q2-heres-whats-in-store
5. “Costco Wholesale Corp. Reports Earnings: Did it Beat Estimate Forecasts?” TipRanks, 3 Mar. 2023, https://www.tipranks.com/news/earnings/costco-wholesale-corp-reports-earnings-did-it-beat-estimate-forecasts
6. “Costco: Key Things To Watch With Q2 Earnings (NASDAQ:COST)” Seeking Alpha, 28 Feb. 2023, https://seekingalpha.com/article/4582747-costco-key-things-to-watch-with-q2-earnings
7. “What to expect from Costco earnings” Quartz, 1 Mar. 2023, https://qz.com/costo-earnings-target-walmart-economy-1850173454
8. “Costco's Falling, but This AI Stock Is Friday's Big Winner” The Motley Fool, 3 Mar. 2023, https://www.fool.com/investing/2023/03/03/costcos-falling-but-this-ai-stock-is-fridays-big-w/
9. “Costco Doubles Down On Expansion Plans and Fee Increases, As Sam's Club Rivalry Heats Up” Eat This, Not That, 3 Mar. 2023, https://www.eatthis.com/costco-sams-clubs-rivalry/
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