Shares in wholesale retailer Costco (COST) are up roughly 10% since the start of the year, even as high inflation continues to put pressure on U.S. consumer spending. Yet the retailer reported another month of net sales growth on Wednesday. In response, COST stock has received two Buy ratings so far. However, the consensus across Wall Street remains a Moderate Buy.
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Costco Reports 11% Sales Growth in July
In its latest update, Costco said its net sales for the retail month of July came in at $23.12 billion. This marks a 10.7% increase from $20.89 billion a year earlier.
To break it down, comparable sales for the period rose by 8.9% or 6.6% after adjusting for changes in gas prices and foreign exchange. This metric refers to in-store and online sales from Costco’s warehouses and websites that have been open for more than a year.
However, net sales growth rate came in flat when compared with 10.6% growth in June. This could mean a slowdown in growth after several months of faster growth rates. Net sales grew by 14.5% year-over-year in May and by 13% in April.
Higher sales in earlier months benefited from factors such as surging gas prices (Costco sells them at lower prices) and Easter coming earlier this year.
What’s more, sales through digital channels (minus gas prices and forex) are also slowing. They rose by 18.2% year-over-year in the retail month of July. This compares less favorably with 21.5% in June and 20.9% in May.
Why William Blair Remains Bullish on Costco
Reacting to the July update, William Blair’s four-star analyst Phillip Blee reaffirmed his Buy rating on Costco stock. Blee noted that the retailer “delivered another dependable month” in July.
The analyst argued that while July’s comparable sales are a step down from June’s, the quality was better. During the retail month, traffic (number of customers) to Costco warehouses picked up again. Traffic rose by 3.6% compared to 3.2% in the month before.
Blee said his team expected this result as Costco has continued to prioritize lower prices. This meant the average ticket—the average amount of money spent per customer visit or transaction— grew by 2.9% in July compared to 3.9% a month earlier.
“Trading ticket for traffic is exactly what we want to see from a defensive operator leaning into its value proposition, and it should help sustain momentum into the close of the fiscal fourth quarter,” Blee contended.
Is Costco Still a Good Stock to Buy?
On Wall Street, analysts continue to consider Costco’s shares as a Moderate Buy based on their consensus rating. This breaks down into 13 Buys, seven Holds, and one Sell issued by 21 analysts over the past three months.
However, the average COST price target of $1,095.36 implies about 16% upside in the months ahead (see COST stock forecast here).
