Costco Wholesale (COST) reported September net sales of $30.02 billion on October 7, up 13.0% from $26.58 billion a year earlier. Digitally enabled sales rose 19.0% over the five weeks ended October 4.
That 13% headline needs a gas adjustment before it says much about shoppers.
How Much of Costco’s Growth Was Gas?
Total comparable sales rose 11.4% as reported, but 7.6% excluding gasoline prices and currency. In the U.S., the gap was wider: 12.5% reported against 8% ex-gas and FX.
- Gas prices and FX added about 3.8 points to total comps, and about 4.5 points in the U.S.
- Truist estimated gasoline sales rose in the mid-40% range.
- Labor Day fell a week later this year, which Costco said added a little more than 50 basis points.
- Even adjusted, total comps of 7.6% beat August’s 5.4%, per Truist.
Gas Lifts Sales, Not Margins
Gasoline earns thinner margins than Costco’s core merchandise, so a larger gasoline sales mix can dilute its gross margin percentage. TIKR’s gross margin series shows 12.55% for fiscal Q4 (ended August 30), versus 12.91% a year earlier. Separately, Costco reported that its gross margin increased 20 basis points excluding gasoline price inflation.
More gas in the mix means bigger sales and thinner margins.
Costco Stock Trades Below Its Usual Multiple
Costco stock trades at 41.35x forward normalized earnings, below its five-year average of 42.78x and far off its 58.17x peak.
The Street’s mean target of $1,058 sits 12% above the $942 close on October 7. Analysts rate the stock 20 Buys, 4 Outperforms, 13 Holds, 1 Underperform and 1 Sell. Truist reiterated its Hold on October 8, citing valuation and slower membership growth.
BJ’s Wholesale (BJ) and Walmart (WMT), through Sam’s Club, also sell fuel at their clubs, so their sales prints carry the same gas question.
Conclusion
My view is that the demand is real– Strip out gas, currency and the calendar, and Costco still grew comps at roughly 7%, about two-thirds of the headline 11.4%. Gasoline inflation diluted the reported gross margin percentage, even as gas-adjusted margins improved. At 41x, below its 42.78x average, the stock asks for steady growth, and September’s adjusted comp came in at 7.6%.
Want to see how much of Costco’s growth is showing up in profit? Pull up its gross margin history and five-year P/E range on TIKR for free. Learn more here.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
