Costco Wholesale Reports ‘Solid’ Fiscal Q1 Earnings, Special Dividend Likely to Impact Fiscal 2024 EPS, Morgan Stanley Says

Costco Wholesale (COST) reported “solid” earnings per share growth in fiscal Q1 despite below-average comparable sales, but its special dividend could potentially impact fiscal year 2024 EPS, Morgan Stanley said in a note to clients Friday.

Costco’s earnings before interest and taxes still grew 7.6%, while its EPS jumped over 12% in the quarter, roughly in line with pre-COVID-19 pandemic levels. US comparable sales of 2.6% and total comparable sales of 3.9%, excluding gasoline, were below the average of 5% from 2016 to 2019, according to the note.

Morgan Stanley analysts said that fiscal 2024 comparable sales and EBIT estimates “look safe” and they don’t expect analysts’ forecasts of 4.3% in comparable sales growth and $8.9 billion in EBIT to “significantly change.”

The retailer’s special dividend of $15 per share, which is the highest special dividend set in more than a decade, is expected to reduce the company’s cash balance by almost $6.7 billion and cut Morgan Stanley’s fiscal 2024 net interest income estimate by roughly $165 million, representing a 2% impact to the company’s fiscal 2024 EPS, the firm’s analysts said.

The investment firm raised its price target on Costco to $675 from $585 and kept its overweight rating.

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