Costco shares fall as June sales growth slows below expectations

Costco shares fell more than 4% on Thursday after the warehouse retailer reported slower June sales growth, with total revenue up 10.6% from a year earlier to $29.4 billion, according to the company. The move left the stock up about 5.5% for the year, behind the S&P 500’s nearly 10% gain, as investors weighed resilient demand against a high valuation and softer consumer indicators.

In the U.S., comparable sales excluding gasoline rose 7.6% in June, down from 8.7% in May and below Mizuho analysts’ expected range of 8% to 9%. CNBC’s Jim Cramer said Thursday that Costco was “in a funk,” while also describing the company as a relatively strong operator in a weak retail environment.

Comparable sales, or comps, track revenue at locations open for a defined period and are closely watched because they strip out some of the effect of new store openings. Excluding gasoline can also give investors a clearer view of merchandise demand, since fuel prices can move reported sales without reflecting changes in shopper behavior.

Costco’s June report showed slower momentum across categories, according to CNBC. Domestic traffic increased 3.2%, about 50 basis points below the previous month’s pace. Average ticket growth, excluding gasoline, foreign exchange and inflation, eased to 3.7% from 4% in May.

Jeff Marks, portfolio director for the CNBC Investing Club, said during the club’s Morning Meeting that the company was still performing well, although not as strongly as in May. He described Costco as a defensive retailer capable of posting solid comparable sales in different economic conditions.

Cramer said he would be interested in buying Costco shares if the stock moved below $900. The shares were trading around $913 on Thursday afternoon, according to CNBC. Cramer’s Charitable Trust owns Costco shares, CNBC disclosed.

Consumer pressure shows up in retail data

The broader retail sector has trailed the market this year. The SPDR S&P Retail ETF, known by its ticker XRT, was up 1.7% year to date, according to CNBC.

KeyBanc Capital Markets’ latest consumer survey, conducted late last month and published Monday, found that spending intentions and financial confidence weakened during the March-to-June quarter. KeyBanc attributed the decline to concerns about elevated food prices, personal income and gasoline costs.

Costco still reported pockets of strength. CNBC said the company’s ancillary operations, including gasoline and pharmacy, performed well in June. E-commerce sales rose 21.5%, accelerating from 20.9% in May, with CNBC noting that the gain likely benefited from Costco’s online Membership Appreciation Days event held from June 22 through June 26.

Valuation keeps expectations high

Analysts cited by CNBC said the June results did not alter Costco’s competitive standing, but the company’s valuation leaves limited room for slower growth. FactSet data cited by CNBC showed Costco trading at 41 times forward earnings, compared with 36.5 times for Walmart and nearly 20.5 times for the S&P 500.

Mizuho wrote after the sales release that few retailers could deliver a 7.6% comparable-sales gain and still disappoint investors, but Costco’s premium multiple creates a high threshold. The firm characterized the report as acceptable, though not as strong as it could have been. Wells Fargo offered a similar assessment, saying the results missed elevated expectations while leaving Costco’s market position intact, according to CNBC.

Membership trends remain another focus for investors. Costco reports membership figures quarterly, and in its fiscal third-quarter results released in late May, paid memberships reached 82.9 million, below expectations but up 4.1% from a year earlier. The worldwide renewal rate held at 89.7%.

Costco is scheduled to report July sales on Aug. 5 and fiscal fourth-quarter earnings on Sept. 24, according to CNBC.

This story draws on original reporting from CNBC.