On Friday, Deutsche Bank (ETR:DBKGn) updated its outlook on Costco Wholesale (NASDAQ:COST), increasing the price target to $1,096.00 from the previous $1,091.00, while reaffirming a Buy rating on the shares. The adjustment follows Costco's first-quarter results, which the analyst described as leaving "little to pick at," highlighting the company's strong performance.
Costco's quarterly report showed a robust gross margin of 11.3%, surpassing both Deutsche Bank's and the Street's expectation of 11.0%. The report also noted strong sales in various categories, including furniture, appliances, sporting goods, and hardware, which contributed to the e-commerce sales growth. Costco experienced significant customer traffic, marking the 15th consecutive quarter of at least mid-single-digit growth.
The company's top-line growth was particularly strong in the United States, with core comparable sales up 7.2%, exceeding the Street's forecast of a 6.1% increase. This was supported by high single-digit growth in fresh foods and non-foods, as well as mid-single-digit growth in food and sundries. The e-commerce sector also showed double-digit growth, and Costco Logistics completed nearly one million deliveries during the quarter, with most being completed within four days.
Regarding inflation, the report indicated that it was relatively flat for the quarter, with slight inflation in food and sundries and fresh foods, balanced by deflation in non-foods. Additionally, Costco provided insights into its emerging retail media business, having conducted its first targeted media campaign, which yielded two to three times the return on ad spend (ROAS) typically expected.
The analyst concluded by expressing optimism for Costco's ability to maintain its revenue growth and to expand margins through its retail media business and the ongoing evolution of its business model.
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