Costco Wholesale Corporation (NASDAQ:COST) saw its stock climb markedly on Thursday, driven by impressive monthly sales data indicative of steady, broad-based consumer demand. This upward movement in share price reflects investor confidence as the company simultaneously reported robust performance both within the United States and in its international markets.
Christopher Horvers, an analyst at JP Morgan, maintained an Overweight rating on Costco shares, accompanied by a price target of $1,000. He emphasized the retailer's ongoing trajectory of expanding market share across multiple product categories, complemented by improving traffic trends. According to Horvers, these positive developments suggest that comparable sales growth is poised to accelerate further. This anticipated momentum is expected to benefit from easing year-over-year comparison metrics and the support of stimulus-fueled consumer spending, ultimately enabling valuation expansion.
In dissecting Costco's product composition, Horvers highlighted that approximately 70% of the company’s offerings are consumable staples — a segment typically characterized by consistent demand. This product mix positions Costco advantageously within the retail landscape, conferring a degree of resilience. The company's business model benefits substantially from long-term initiatives focused on expanding its global store footprint. Moreover, Costco's revenue model, anchored by strong membership renewals, reinforces recurring income streams.
Membership fees constitute nearly half of Costco’s operating profit, granting the company notable pricing power and flexibility in managing margins. Alongside this, the company is witnessing enhancements in profitability from its e-commerce operations. Horvers also identified growing revenues from advertising as a contributor to potential margin improvements, indicating diverse avenues reinforcing Costco's financial performance.
Highlighting sales specifics, the U.S. core comparable sales metric surged 6.3% in December, significantly outperforming both consensus expectations and the company’s internal targets. Traffic within U.S. stores increased by 2.4%, while overall enterprise-wide traffic, inclusive of international locations, rose 2.7% on a year-over-year basis. Excluding the impacts of lower gas prices and foreign exchange fluctuations, the average transaction value increased by 3.4%, underscoring elevated spending levels among customers.
In Canadian markets, core comparable sales matched projections at 6.0%, whereas international regions slightly exceeded anticipated performance. When adjusting for fluctuations in fuel prices and currency exchange rates, comparable sales reached a 6.9% increase, underscoring a stable and strong demand trend across global operations.
Within the United States, geographic analysis revealed particularly strong results in the Midwest, Northwest, and Southeast regions. Internationally, robust contributions were observed from Australia, Japan, and Korea, bolstering the company’s overseas growth profile. Horvers noted, however, that inclement weather negatively affected demand in the Northeast during December. Despite this, competitive pressures, especially relative to BJ's Wholesale Club, appeared less pronounced. Additionally, pressures stemming from store cannibalization have eased, declining to 50 basis points from a previous 60 basis points, signaling an improvement in store network dynamics.
The December sales momentum validates Horvers’ perspective that Costco continues to outperform its retail counterparts. Strong results over the November and December holiday period reinforce the notion that Costco successfully capitalized on seasonal shopping demand, effectively 'winning the holidays.' This performance underpins expectations of persistent upside potential as comparative figures from the prior year become less challenging.
Moving forward, the easing of year-over-year comparisons is projected to facilitate further sales growth as the seasonal strain diminishes. Moreover, Horvers anticipates that forthcoming spring tax stimulus payments will provide additional demand support. The introduction of extended shopping hours for Executive membership holders is also proving effective in stimulating greater visit frequency and elevated spending volumes.
Executive membership enrollments have seen an uptick, increasing from 70,000 weekly sign-ups in the preceding quarter to 80,000 per week, reflecting growing consumer engagement with Costco’s premium membership tier. The expansion of Executive members has contributed to an approximate 5% increase in membership fee income during the current quarter, strengthening the company’s revenue base.
In terms of market response, Costco shares rose by 5.05%, reaching a price of $927.11 at the time of reporting, according to data from Benzinga Pro. The positive market reaction reflects investor optimism fuelled by the company's aggressive sales trajectory and underlying operational strengths.