We're Boosting Our Price Target for This Holding After $21 Billion Sales

On Wednesday night, Costco COST reported its November sales rose 5.6% year over year to $21.87 billion implying its store and e-commerce sales for the 12 weeks that comprise the November quarter tallied $60.99 billion, up 7.5% compared to year-ago levels.

Add in the quarterly run rate for the company’s membership fee revenue between $1.5 billion and $1.6 billion and it looks like Costco should meet or modestly beat consensus revenue expectations of $62.12 billion for its November quarter when it reports next week. Because of the phased-in impact of the company’s September 1 price increase across the existing membership base, we’ll be looking to see if there is upside to that membership fee revenue run rate in the quarter and for the ones ahead.

Costco management shared that overall sales as well as comp sales for the month were impacted by the later-than-usual Thanksgiving to Cyber Monday shopping, which missed its November 24 quarter-end date. For the first 13 weeks of the company’s new fiscal year, sales rose 7.2% to $66.52 billion, which just tells us the company was off to a solid start for the current quarter and taking consumer wallet share over the holiday shopping weekend.

That reaffirms our view on COST shares as the company should continue to outperform as inflation pressures remain sticky, consumers contend with higher price levels and Costco captures more benefits from its membership price increase while continuing to expand its footprint. In response, we are lifting our COST price target to $1,050 from $975 but, given the upside to that target and with COST shares now overbought, we are maintaining our Two rating. We would look to revisit that rating if COST shares pulled back below $925.

Costco’s November Comp Sales

Breaking down Costco’s November sales, we find its adjusted comp sales, which exclude the impact of currency and gas prices, rose 4.9% across the entire company with the U.S. up 4.3%. E-commerce sales fell 2.5% year over year, but it was this segment that felt the greatest impact of the later Thanksgiving-Cyber Monday that missed its November 24 quarter-end date. Management estimates the impact on November e-commerce sales was 15 percentage points and 1.5 percentage points for November comp sales.

In reviewing the sales data for the last 12 weeks, Costco’s adjusted comp sales rose 7.1% across the entire company, with the U.S. up 7.2% while e-commerce rose 13.2%. Sizing up those figures against other recent retail earnings reports reaffirms our thinking that Costco is winning market share, but we’ll look for more confirmation in the November Retail Sales report that will be published on December 17.

The Next Catalyst for COST Shares

Given the role of job creation and wage gains in consumer spending, we’ll be closely watching tomorrow’s November Employment Report with an eye toward COST shares. Beyond that, the next known catalyst for the shares will be Costco’s November quarter earnings report after the market close on December 12.

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