Shares of Costco Wholesale (COST 0.72%) are falling 3.3% at 11:15 a.m. ET in morning trading trading Friday after the warehouse club reported disappointing fourth-quarter earnings yesterday that just missed Wall Street's top-line estimates, but exceeded them on the bottom line.
Costco said it generated $3.30 per share in profits on $55.3 billion in sales for the period, a bit of a mixed bag for the retailer as analysts were looking for $3.21 per share in profits, but $55.5 billion in revenue.
There is a growing consensus that the U.S. consumer is going to come under increasingly difficult-to-ignore pressure this year, and Costco will not be immune from the impact. Persistent inflation, rising interest rates, and energy prices that remain elevated will continue to tax consumers in 2023.
Yet that does not undermine the confidence Wall Street has in Costco to ultimately weather the storm.
Although Baird analyst Peter Benedict just lowered the firm's one-year price target on the warehouse retailer to $535 per share from $570 per share, the analyst maintained his outperform rating on the stock because Costco store traffic remains "best-in-class," its inventory is "in great shape," and its membership base remains robust. Benedict told investors in a research note that even though consumer spending is going to worsen, Costco is well positioned to thrive.
Costco has another lever it can pull to help soften any blow from reduced consumer spending, which is raising its membership fees. It's been almost six years since the warehouse club raised its fees, which is just about when Costco tends to raise them.
With an individual membership at $60, a nominal increase won't scare off members, but it will add revenue to its top line.