Costco Wholesale Corp.'s (COST) morning run here on Friday may have many wondering if they've missed a deal.
The Issaquah, Washington-based bulk retailer posted very strong earnings on Thursday evening to send its shares up around 4% at the open on Friday. Costco reported earnings for the three months that ended Feb. 17 came in at $2.01 per share, up nearly 27% from the like period a year ago and well ahead of the Street consensus forecast of $1.69 per share.
The earnings beat, an impressive 6.7% increase in same-store sales and a 7.3% increase in net sales headlined the report; results were aided by more than 25% growth in comparable e-commerce sales. The myriad of positive figures have strongly overshadowed a slight miss on revenue, allowing the surge on Friday.
Big Lots beats. As @michaelsantoli noticed, major retailers beat estimates with a savagery not seen since the 1978 Holmes - Norton fight. $COST $BIG $TGT $ANF $WMT and $AMZN all failed to see the slowdown suggested by gov't data. Just like Larry Holmes ignored the odds. pic.twitter.com/9x3xMeCBhn— Jeff Macke (@JeffMacke) March 8, 2019
Analysts piled on the adulation after the release, with a chorus of price target increases adding to the existing "Buy" consensus.
"Longer term, we believe COST's unrivaled value proposition, its fiercely loyal customer base, and global growth opportunity are a rare combination in retail and consumer staples," J.P. Morgan analyst Christopher Horvers commented. "Given the company's expanding online offering and improved value prop from its Visa (V) credit offering, we see a runway of share opportunity both in-store and online.
Horvers raised his price target from $240 per share to $248 as the bull case looks strengthened following the quarterly report.
In contrast to Kroger (KR) , Costco has been able to leverage a relationship with Visa (V) to bolster margins through an exclusive agreement with the payment processor and its own credit cards. The ability to increase sales and maintain lower margins than the industry is a clear competitive advantage in the eyes of many stock-watchers.
"Our Buy rating on COST shares anticipates mid-single-digit comp store sales growth to continue for at least the next several quarters, given favorable comparisons and Costco's sustained focus on improving its value proposition, including changes to promotional activity and reinvestment funded by the transition to the Citi (C) Visa credit card in 2016," Stifel analyst Mark Astrachan said. "Although long-term uncertainties, such as renewal rates from the recent membership fee price increase and the threat from Amazon (AMZN) remain a watchpoint, we maintain our Buy rating as we believe current valuation provides modest downside protection."
Costco's February sales were slower than prior months, which suggests a downside possibility is present. But Costco CFO Richard Galanti eschewed this idea, suggesting the slowdown was a result of seasonality, not a sign of a slowdown.
"We more than anybody hate to use the word weather as a reason," Galanti said. "But I think if you ex the weather, which we assumed, I think I said it was 1% in the month for the full company, a little more than 4% in the U.S. and Canada."
He added that if you take out that impact, the sales numbers for the month of February will appear more in line with the stronger months in the report.
"You add the holiday shift in Asia, you take those things out, we're a little lower, not a lot lower than we've been enjoying for the last several months," he said. "I guess we'll have to wait and see how March is."
The consensus price target on the stock has risen from about $234 per share to more than $240 as optimism abounds as March kicks off, suggesting most analysts are on board with Galanti's explanation and remain optimistic that there is room left to play Costco stock.