Costco Wholesale Corporation’s stock faced a significant downturn, closing down over 7% at approximately $725 per share on Friday.

This marked the worst performance day for the retailer’s stock in nearly two years, following its failure to meet Wall Street’s earnings expectations.

Second-quarter earnings reveal mixed results

The dip in stock prices came in the wake of Costco’s earnings report for the second quarter of the 2024 fiscal year, which ended on February 18.

Despite boasting an unusual success in e-commerce sales of gold and silver, the wholesale giant now grapples with the impact of declining gasoline prices on its overall sales.

Gasoline prices impact total sales

Richard Gallanti, Costco’s CFO, highlighted the adverse effect of lower gasoline prices on the company’s reported comparable sales.

“The average worldwide selling price per gallon of gas was down approximately 3.5% compared to last year,” said Gallanti, who is also preparing to step down from his position at Costco.

Membership drives sales growth

Despite these challenges, Costco’s total comparable sales, excluding gas and currency exchange fluctuations, saw a healthy increase of 5.8%.

This demonstrates the continuing consumer interest in the deals offered by the 40-year-old membership-based retailer.

With a net sale increase of 6% to $57 billion and an additional $1.1 billion generated from membership fees, Costco’s financial health remains robust.

Analysts remain optimistic about Costco’s future

Several analysts have weighed in on Costco’s stock with varying degrees of optimism:

Oppenheimer analyst Rupesh Parikh maintains an Outperform rating with a price target of $805.

Goldman Sachs analyst Kate McShane has a Buy rating, with her price target increased from $749 to $830.

DA Davidson analyst Michael Baker holds a Neutral rating, raising his price target from $600 to $680.

Potential membership fee increase

Analysts commend Costco for its steady traffic growth and acceleration in sales across many discretionary categories.

The potential for a membership fee increase remains a focal point, with the company suggesting it’s a matter of when, not if.

Despite no action yet, analysts believe Costco has other levers to drive business, including managing inflation and strong e-commerce growth.

More By This Author: