BofA revises Costco price target after sales surprise

Bank of America revised its price target for Costco after the warehouse club reported comparable-store sales that outperformed consensus in its latest monthly update.

In a research note, the bank updated assumptions for customer traffic, membership trends, gross margins and inventory levels to reflect the stronger sales print.

Costco's disclosure showed higher customer visits and increased average transaction values versus the prior period. The bank incorporated those metrics into its merchandise revenue and membership-income models.

Analysts at the firm revised near-term earnings forecasts and adjusted margin assumptions to account for inflationary inputs and promotional activity in some categories that could compress gross margin despite stronger sales.

Inventory levels and supply-chain timing were identified as key variables that can affect both sales comparisons and margin outcomes. The research team said it will track upcoming monthly sales releases to see whether the recent strength continues.

The note referenced membership renewal rates and the mix of discretionary versus staple goods as indicators of demand resilience and cautioned that shifts toward lower-margin items could increase volatility in profits.

Costco's membership fees generate a substantial share of operating profit. The retailer operates hundreds of warehouse clubs across the United States and internationally and sells goods through its clubs and online channels.

Bank of America plans to continue monitoring Costco's monthly sales updates, membership data and quarterly results, as well as promotional cadence, private-label performance and any changes in capital allocation, including share buybacks and dividend policy.