Costco Delivers Again: Price Target Boosts After Major Earnings

After Costco COST reported its November monthly sales figures, we boosted our price target to $1,050 from $975 and, following Thursday night’s November quarter earnings report, we are seeing others make similar moves with their price targets.

TD Cowen boosted its target to $1,090 from $975 and Deutsche Bank went to $1,096, but the big bull on the shares, BMO Capital Markets, hoisted its target to $1,175. We would say Costco’s earnings report confirmed our decision to boost our price target and reaffirmed the bulk benefit for its recent membership price increase is yet to come. It also confirmed the company continues to benefit from consumers combating high food prices, something we don’t see ending in the near term. Moving into 2025, we’ll revisit our price target as we digest the coming monthly sales reports and track progress on new warehouse locations, a harbinger for the company’s membership fee revenue.

Breaking Down the November Quarter

Costco’s top line for the November quarter came in at $62.15 billion, up 7.5% year over year and a tad better than the consensus forecast. EPS of $3.82, which excludes a $0.22 per share tax benefit, was ahead of the $3.79 consensus. Because Costco reports its monthly sales figures, which means its net sales figure of $61 billion, up 7.5% year over year, contained few surprises, the two figures we tend to focus on are membership fee revenue and the company’s overall income margin. They came in at $1.16 billion, up 7.7%, and 9.6%, expanding nicely compared to year-ago levels.

Costco ended the quarter with 77.4 million paid household members, up 7.6% versus last year, and 138.8 million cardholders, up 7.2% year over year. Paid Executive Memberships, which carry a higher membership fee, ended the quarter at 36.4 million, up 9.2% versus last year. Renewal rates remain robust at 92.8% for the U.S. and Canada, and 90.4% worldwide. During the quarter, Costco opened seven new warehouses and targets adding another 22 over the next three quarters.

The company also shared that it continues to make progress in its digital shopping and digital advertising efforts. During the quarter, the U.S. app was downloaded 2.9 million times, bringing total downloads to approximately 42 million, and that helped fuel comp sales of 13.2% for the quarter. That level of growth put e-commerce sales at 7% to 8% of total sales for the quarter, and we see further gains ahead.

In terms of digital advertising, Costco is still in the early innings of leveraging its online and app base, but management shared that it is working with over 25 suppliers interested in its digital advertising efforts. The way we see it, those companies want to tap into Costco’s growing digital membership base much the way its suppliers want to reach its membership when they visit Costco’s warehouses. As that digital effort matures, if it repeats what we’ve seen with Amazon AMZN and others, it should have a very nice impact on Costco’s margins in the quarters ahead.

Costco Fun Facts

Costco tends to share some fun statistics from the quarter on the earnings call, and we’ll share a few because they help give some context for Costco’s business:

U.S. food courts on Halloween Day: the company set a new record of 274,000 whole pizzas being sold.

The U.S. pharmacy business posted prescription growth exceeding 19% for the November quarter, setting a new volume record for that business.

Last year, Costco sold enough rental cars to fill every U.S. Costco parking spot 8.5 times.

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At the time of publication, TheStreet Pro Portfolio was long COST.