Solid December sales report expected by Costco - Telsey Group

© Reuters.

By Sam Boughedda

Telsey Advisory Group analysts told investors in a note Thursday that they expect Costco (NASDAQ:COST) to post a solid December sales report.

Costco will report its December sales after the close on Thursday, January 5.

The analysts, who reiterated an Outperform rating and $580 price target on the stock, explain in the note that Costco's December sales should continue to benefit from high food and overall inflation, which pushes consumers to the store in a search for value.

However, "this should be partly offset by softness in discretionary categories due to tough macro trends and elevated inventory/promotions across retail," they argue. "Furthermore, lower fuel prices and stronger US dollar should weigh on results."

"In December, gas prices declined ~2.5% YoY, which we estimate should pressure the total comp by ~25 bps. Furthermore, the stronger US dollar should be an estimated headwind of ~200 bps," said the analysts. "We forecast a total comp of 1.3% vs. 14.5% last year. Excluding a projected net gas and FX headwind of ~220 bps, we estimate a core merchandise comp of 3.5% vs. 11.5% last year, with a US comp, ex gas, of 3.0% vs. 11.5% a year ago, a Canada comp, ex gas and FX, of 2.0% vs. 13.6% last year, and an Other International comp, ex FX, of 8.0% vs. 9.6% in December 2021."

Costco shares are up more than 2% at the time of writing.