(Reuters) - Costco's shares were down over 7% on Friday and set for its worst day since May 2022 after the membership-only retail chain missed second-quarter revenue expectations and signaled a negative impact from lower gasoline prices.
At least seven brokerages raised their price target on Costco, with Jefferies raising the most to $905 after the retailer's second-quarter revenue rose 6% to $58.44 billion, which fell short of LSEG estimates of $59.16 billion.
"Gasoline price deflation negatively impacted total reported comp sales ... the average worldwide selling price per gallon of gas was down approximately 3.5% versus last year," Costco's outgoing CFO Richard Gallanti said.
"The stock just had a very strong run into the earnings print, and so we see this a lot with Costco where ... stock will sell off on financial news and then recovers within a few weeks or something," Telsey Advisory Group analyst Joseph Feldman said.
Costco has also seen a pullback in demand for higher-margin goods like appliances and electronics. U.S. retail sales had fallen by the most in 10 months in January as customers remained cautious heading into 2024.
However, comparable sales, excluding fuel and currency fluctuations, saw a 5.8% increase as the retailer's efforts to lower prices on select products attracted consumers looking to shop by the penny.
"Their underlying same-store sales are very strong, they are getting very good traffic into the stores and that's the biggest sign of health as a retailer," Feldman added.
Brokerages believe the retailer is capable of attracting customers in an uncertain environment and driving revenue growth through strong demand, membership fees, and lower prices.
Costco shares were currently trading at $728.80 and median price target, according to LSEG data, is at $780.
(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Tasim Zahid)
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