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Costco Stock Rises as Analysts Boost Price Targets After Earnings

People shop at a Costco store on March 14, 2021 in Washington, DC.

Daniel Slim/AFP/Getty Images

Costco Wholesale beat Wall Street estimates for fiscal first-quarter revenue while mitigating supply-chain issues and price increases. The company cautioned, however, on toy shortages for Christmas.

Total revenue, including membership fees and net sales, was $50.36 billion and earnings were $2.97 a share. Analysts were looking for revenue of $50.15 billion and profits of $2.67 a share. A year earlier, Costco reported revenue of $43.2 billion.

“Overall, we feel we’ve dealt pretty well with the supply-chain challenges,” said Chief Financial Officer Richard Galanti on a conference call after the earnings were released Thursday evening.

About 79% of import containers arriving at Pacific Coast ports are late by an average of 51 days, Galanti said.

“In some instances, delayed inventory simply extends the season,” Galanti explained. Toys, lawn, garden and patio items were some examples of products that may be delayed past the holiday season.

“Some inventory, in fact, won’t make it before Christmas, but we’ve mitigated that as best as possible and feel pretty good about it, ” Galanti said.

The supply-chain and inflation issues outlined by Costco in the first quarter are similar to what the company noted in the previous quarter. Other pressures include higher labor costs, truck and driver challenges, container challenges, and shortages of raw materials and ingredients and packaging supplies.

Costco estimated that overall year-over-year price inflation about 4.5% to 5% in the first quarter.

“[We] feel pretty good about staying in stock and continuing to work to mitigate cost and price increases as best we can,” Galanti said.

Adjusted same store sales, excluding gas and foreign exchange, for the quarter rose 9.8%. E-commerce sales grew 13.3%.

Analysts boosted their price targets on the stock.

BMO Capital analyst Kelly Bania lifted her price target on Costco to $560 and reiterated an Outperform rating. Morgan Stanley analyst Simeon Gutman boosted the price target to $560 from $510 with an Overweight rating. Citi analyst Paul Lejeuz raised his price target to $550 from $540 and maintained a Neutral rating on the shares.

Costco is a top pick at BMO. “We continue to believe that COST remains well positioned heading into 2022,” Bania said, citing potential increases to membership fees in late 2022, more exposure to higher-end consumers, and expanding omni-channel features.

Stifel analyst Mark Astrachan believes Costco will announce a membership fee increase of roughly 8% sometime over the next 12 months based on prior fee increases since 2006. Astrachan lifted his Costco price target to $555 from $550 and maintained a Buy rating.

The stock rose 3.7% to $543.67 on Friday.

Write to Karishma Vanjani at [email protected]

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