May 25, 2023

Costco shares will be closely watched this week as a barometer for the US consumer.

COST – Daily Chart

COST – Daily Chart

The price of COST is trading at the $481.38 level, with support below the $465 level if the bearish trend continues.

Costco faces slowing sales growth as shoppers cut back on large discretionary items. Comparable sales in March were weaker than expected. However, Bloomberg Intelligence sees continued strength in food sales as consumers spend more selectively. Slower inflation in some categories may allow Costco to lower prices, helping to hold onto high membership-renewal rates. Analysts are still optimistic about Costco’s ability to weather headwinds due to its loyal customer base, which may allow a possible fee increase in the future.

Net income is projected at $1.46 billion, or $3.28 a share, up 7.6% from last year’s period.

Costco’s growth in recent years has come from effective price management, higher memberships, and growth in the company’s e-commerce platform, which grew in popularity during the pandemic. Total memberships, combining executive, business, and gold star cardholders, are expected to rise to 68.4 million, up 6.2% from last year.

Recent strength in US retail sales could help with a 0.4% increase in April. Economists expect consumer spending to support the economy despite the increased risks of a recession as the effects of the Federal Reserve’s interest rate hikes continue.

The retail sales report “should help reassure markets that consumer spending is not about to contract and will instead support at least modest continued economic growth,” said Andrew Hollenhorst, chief US economist at Citigroup in New York. Further consumer sentiment will be evident on Friday with the release of US Michigan consumer sentiment numbers.

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