Retail giant Costco Wholesale’s (NASDAQ:COST) fourth-quarter 2023 earnings report showcases robust financial performance amid continued economic challenges. The company’s performance was driven by increased membership fees and strong comparable sales. However, COST stock dropped about 2.5% in yesterday’s extended trade as the company did not announce the anticipated increase in membership fees.
Earnings of $4.86 per share in the fourth quarter exceeded the Street’s expectations of $4.79 per share and came in above the $4.20 per share reported in the same quarter last year. Meanwhile, Costco’s Q4 net revenues increased 9.4% year-over-year to $78.9 billion and surpassed analysts’ expectations of $77.7 billion.
Adjusted comparable sales, a key indicator of retail health, grew by 3.8% year-over-year during the quarter. However, COST experienced a 0.8% decline in online sales during Q4. Chief Financial Officer Richard Galanti attributed this decline to reduced consumer spending in categories such as furniture, small electronics, and jewelry, which constitute the majority of online sales.
One of Costco’s strengths is its membership-based model. It reported a 14% year-over-year increase in membership fees, and global renewal rates remained high at 90.4%. Additionally, COST experienced growth in its membership base, with 71 million paid household members and 127.9 million cardholders, both up nearly 8% from the year-ago quarter.
Is COST Stock a Buy or Sell?
Following the earnings release, DA Davidson analyst Michael Baker raised the price target on COST stock to $570 from $478 while maintaining a Hold rating. Baker noted that Costco had a strong quarter, with better-than-expected gross margins being a key positive.
However, he also pointed out that higher-than-expected costs offset the benefits of the higher gross margin, leading to EBIT results below estimates.
Overall, Wall Street is optimistic about the company’s growth prospects. COST stock commands a Strong Buy consensus rating based on 15 Buys and four Holds. The average price target of $593.50 implies an upside potential of 7.3% from the current level. Shares of the company have gained 22.7% so far in 2023.
