Costco’s 2Q Sales Soar 15% On E-Commerce Boom; Street Is Bullish

Costco Wholesale Corp. reported 2Q revenues that beat the Street’s estimates, driven by strong comparable sales (comps) and e-commerce growth. However, 2Q earnings missed consensus estimates due to costs related to the COVID-19 pandemic. Shares of the retailer were down 2.3% in Thursday’s extended trading session.

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Costco (COST) reported 2Q earnings of $2.14 per share, which grew 1.9% year-over-year but fell short of the Street’s estimates of $2.45 per share. 2Q earnings included “$246 million pretax, or $0.41 per diluted share, in costs incurred primarily from COVID-19 premium wages,” the company said.

2Q revenues (including membership fees) increased 14.6% year-over-year to $44.8 billion, topping consensus estimates of $43.8 billion. Excluding membership fees, net sales increased 14.7% year-over-year.

Total comps rose 13%, with e-commerce sales growth of 75.8% in 2Q (ending Feb. 14, 2021). Excluding the volatility in gasoline prices and foreign exchange rate, comps grew 12.9% in 2Q, with e-commerce sales rising nearly 75%.

As for the month of February, the company reported sales of $14.05 billion, which rose 15.2% year-on-year. Comps for February rose 13.8%, while e-commerce sales growth spiked 91.1%. Adjusted comps grew 12.3%, with e-commerce sales rising by 89.4%. (See Costco stock analysis on TipRanks)

During the earnings call, the company’s CFO, Richard A. Galanti, said that effective from March 1, “our entry level hourly wages will increase from $15 and $15.50 an hour to $16 and $16. 50 an hour” in the U.S. and Canada.

Following the results, Oppenheimer analyst Rupesh Parikh lowered the price target to $350 (10% upside potential) from $400. In a note to investors, the analyst said, “We were early and did not expect this shortfall or the minimum wage increase to $16.” He added, “Given still difficult upcoming compares and now cost pressures, the setup has gotten even more challenging. As a result, we view COST shares as appropriate for longer-term players, but are removing as top pick.”

Parikh still maintained a Buy rating on Costco stock, as he believes that “FY23 (August 2023) likely represents a return to normalized profit growth.”

Overall, the rest of the Street has a bullish outlook on the stock, with a Strong Buy consensus rating based on 9 Buys and 3 Holds. The average analyst price target of $396.50 implies upside potential of over 24% to current levels. Shares have gained about 9% over the past year.

Furthermore, COST scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.