On Friday, Telsey Advisory Group adjusted its price target for Costco Wholesale (NASDAQ: NASDAQ:COST) to $850, up from the previous $800, while sustaining an Outperform rating on the stock. This decision follows Costco's announcement of a robust third-quarter fiscal year 2024 earnings growth, which showed a 29.0% year-over-year increase to $3.78 per share. This performance surpassed both Telsey's estimate of $3.71 and the FactSet consensus of $3.70.
The company's total sales for the quarter jumped 9.1% to reach $57.4 billion. Notably, Costco's comparable store sales, excluding gas and foreign exchange fluctuations, climbed 6.5%, with the United States seeing a 6.0% increase, Canada a 7.4% rise, and other international markets an 8.5% surge. These figures exceeded Telsey’s projection of 6.0% and FactSet's expectation of 5.7%.
In terms of profitability, Costco's operating margin expanded by 62 basis points to 3.8%, outperforming Telsey's forecast of 3.6% and FactSet's prediction of 3.7%. The improvement was attributed to a gross margin increase of 52 basis points to 10.8%, which was partly due to the company overcoming last year's negative impact from a $298 million pre-tax charge related to the discontinuation of charter shipping activities during the pandemic. Additionally, there was a 10-basis-point core-on-core product margin gain.
Costco also demonstrated enhanced efficiency, with the selling, general and administrative (SG&A) ratio leveraging 15 basis points to 9.0%. This was achieved through improved labor productivity and cost discipline. As a result, the company's adjusted EBIT dollars for the third quarter fiscal year 2024 soared approximately 31% to $2.2 billion, indicating profitable market share gains.
InvestingPro Insights
Following the upbeat report from Costco Wholesale (NASDAQ: COST), a deeper dive into the company's financial health and market performance using InvestingPro data could provide investors with additional context. With a robust market capitalization of $361.61 billion and a significant year-over-year revenue growth of 6.16%, Costco continues to demonstrate its resilience and strength in the retail sector. Despite challenges, the company has managed to maintain a gross profit margin of 12.55%, which, while not the strongest, still showcases its ability to generate earnings above its direct costs.
Investors should note that Costco is trading at a high earnings multiple with a P/E ratio of 53.48, which could suggest a premium valuation compared to the market. However, the company's consistent performance, as evidenced by a 64.12% one-year price total return and an impressive 28.89% dividend growth in the last twelve months, may justify the confidence reflected in its stock price. Additionally, Costco's ability to maintain dividend payments for 21 consecutive years, as highlighted by one of the InvestingPro Tips, is a testament to its financial stability and commitment to shareholder returns.
For those considering a deeper investment analysis, there are 19 additional InvestingPro Tips available, which could provide further insights into Costco's financial health and market position. To explore these tips and more, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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