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The Ratings Game: Costco June results suggest gas prices helped the warehouse retailer in more ways than one

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While other retailers struggle in the face of inflation, Costco Wholesale Corp. reported a 20.4% net sales increase for the month of June, with analysts suggesting that higher gas prices boosted the retailer in a few ways.

“We believe share gains are being helped by higher gas prices, which are likely driving incremental traffic as consumers gravitate to the clubs to save money at the pump, and then do their shopping while there,” wrote D.A. Davidson analysts led by Michael Baker.

D.A. Davidson said Costco
COST,
+1.77%

got a 740 basis point benefit from gas inflation, with prices up 57% compared with last year. Net sales for the month totaled $22.78 billion, up 20.4% versus 2021. Ancillary business sales, which includes gas, were up in the high-50% range.

D.A. Davidson rates Costco stock neutral with a $440 price target.

UBS notes that the commentary from Costco differed from other retailers like Kohl’s Corp.
KSS,
+0.96%
,
which gave a downward revision of its sales expectations last week, and Bed Bath & Beyond Inc.
BBBY,
-1.45%
,
which announced wider-than-expected losses for the most recent quarter.

See: Kohl’s failed takeover was just one of a wave of abandoned deals amid market volatility

And: Bed Bath & Beyond shares sink after it ousts CEO, reports wider-than-expected quarterly loss

“The performance suggests that Costco is seeing a ‘trade in’ at a time when consumers are under increasing pressure,” wrote UBS analysts led by Michael Lasser.

“Looking ahead, we expect consumers to consolidate trips at Costco as food and fuel inflation fears persist. Plus, we note that Costco’s rapid inventory turns and strong sales should help insulate it a bit from inventory challenges discretionary retailers are facing. With a membership fee hike likely still on the horizon later this year, we think its shares have room to move higher from here.”

Other experts also anticipate trip consolidation as the back-to-school shopping season proceeds.

Also: Target expands promotions for students and teachers amid back-to-school inflation squeeze

Costco stock was trading at about $503 on Friday morning, with shares up 1.8% for the day so far. The stock is down 11.4% for the year to date while the broader S&P 500 index
SPX,
+0.35%

has slumped 18%.

UBS rates Costco stock buy with a $595 price target.

Stifel analysts raised some concerns about the core comp sales deceleration of 300 basis points on a two-year CAGR (compound annual growth rate) basis. Comparable sales excluding the impact of gas pricing and foreign exchange were up 13% for the month of June.

“We think the modest deceleration in the two-year CAGR despite very high single-digit inflation suggests some sequential weakening of underlying volumes, which could reflect weakening U.S. consumer spending,” wrote analysts led by Mark Astrachan.

“Worsening spending trends is a watchpoint in part as it could cause the company to delay a membership fee increase that we originally anticipated would be announced in summer 2022.”

Stifel rates Costco stock buy with a $515 target price.

Don’t miss: Costco discussing membership rate hikes after renewals hit 90%

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