Costco stock falls to lowest in nearly two years after quarterly revenue shortfall.

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Following disappointing results for the second quarter and indications of a negative impact from reduced fuel prices, membership-only retail company Costco (COST.O), opens new tab, saw its share price fall 7.6 percent on Friday, its worst day since May 2022.

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After Costco's second-quarter revenue increased 6% to $58.44 billion, falling short of LSEG estimates of $59.16 billion, seven brokerages increased their price targets for the stock. Jefferies raised the most, to $905, among them.

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"Gasoline price deflation negatively impacted total reported comp sales... the average worldwide selling price per gallon of gas was down approximately 3.5% versus last year," expressed Richard Gallanti, Costco's departing CFO.

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Expert Joseph Feldman of Telsey Advisory Group stated, "The stock just had a very strong run into the earnings print, and so we see this a lot with Costco where... stock will sell off on financial news and then recover within a few weeks or something." That sentiment was echoed by Feldman.

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Costco has noticed a decline in demand for higher-margin items like appliances, furniture, and electronics for the last three quarters. As consumers continued to exercise caution in the run-up to 2024, retail sales in the United States fell by the most in 10 months in January.

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Strong sales for appliances and the retailer's attempts to reduce prices on certain products drew customers eager to shop by the penny, leading to a 5.8% gain in comparable sales excluding gasoline and currency variations.

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"Their underlying same-store sales are very strong, they are getting very good traffic into the stores and that's the biggest sign of health as a retailer," noted Feldman.

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Brokers have faith in the retailer's ability to draw in customers despite the current climate of uncertainty and fuel revenue growth with membership fees, cheaper pricing, and robust demand. According to LSEG data, Costco has a median price target of $780 and closed the day at $725.56 a share.

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