Costco Wholesale (COST) PT Lowered to $405 at Jefferies as Premium Wages Driving a Cost Based Miss

Jefferies analyst Stephanie Wissink lowered the price target on Costco Wholesale (NASDAQ: COST) to $405.00 (from $435.00) after Core comps came in at +12.9% vs. cons. 10.8% on traffic/ticket of 1%/11.9% (U.S. +2.7%/8.5%) and +13.8% Feb comp. Management noted that comps were +17% through first 3 weeks of Feb with week 4 +L/MSD% as they lapped first week of LY's stock up surge. While GM% -2bps Y/Y (-11bps ex-gas), vs. cons./Jef +25bps/+20bps, it included $60M (14bps) COVID wage costs. Adj. EBIT/EPS of $1.34B/$2.14 included $0.41 EPS impact from premium wages of $2/hr, which are now ending, as a result numbers came in below expectations.

No change to the Buy rating, stating "We are tweaking sales cadence, resulting in F21/F22 comps of 8.2%/5.2% vs 8.5%/2.6% prior. We assume 2-yr. stack comp troughs at ~14% in 2H. We adj. margins for higher perm. wages, but remain constructive on fundamental improvements to the biz as evidenced by several qtrs of strong core merch. margin expansion."

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