Costco Wholesale Corporation’s (NASDAQ: COST) Q2 2024 earnings report delivered mixed results, weighing on the company’s stock, which dipped over 4% in after-market trading despite a year filled with robust growth. The company’s shares traded at $752.61 after-market following its latest quarterly earnings release. Year-to-date, Costco’s shares have surged over 19%, and remarkably, they’ve soared over 61% in the past 52 weeks. This growth trajectory underscores Costco’s resilience and market appeal, especially in a retail environment fraught with challenges.
In its fiscal Q2 earnings report, Costco showcased a solid performance, with earnings per share (EPS) climbing to $3.92 from $3.30 a year earlier, surpassing analysts’ expectations of $3.62. This earnings beat highlights the company’s operational efficiency and its ability to navigate through economic uncertainties effectively. However, the company’s net sales of $58.442 billion, albeit up from $55.27 billion the previous year, slightly missed the analysts’ projection of $59.111 billion.
The shortfall in revenue estimates is attributed to weaker discretionary spending, reflecting broader economic pressures on consumer budgets. Despite this, Costco’s comparable sales growth and a significant uptick in e-commerce sales by 18.4% illustrate its ability to retain and grow its customer base. Notably, the company has chosen not to raise membership fees currently, a strategic decision that could sustain member loyalty but is a factor investors are keenly watching.
Technical Analysis
The post-earnings price action presents an interesting technical setup. While the share price fell over 4% after-hours, it continues to trade comfortably above all key moving averages [50-SMA (blue line), 100-SMA (orange line), 200-SMA (red line)] with a bullish configuration (shorter-term averages above longer-term averages).
Therefore, with the RSI (85.08) trading comfortably at overbought levels, a “gap-and-go” scenario could see the $739.25 support level tested in the coming sessions. A confirmed break below this level, particularly on significant volume, could expose lower support zones at $709.25 and $675.96.
However, the recently reached all-time high of $785.59 could come into focus should the bulls regain control in the near term. A successful bridge of the all-time high could propel the share even higher, with a 23.60% Fibonacci extension level of $813.30 acting as the next level of significance.
Summary
Costco’s post-earnings price action highlights the ongoing struggle between positive technical indicators and the recent revenue miss. While the longer-term trend remains bullish, the overbought RSI suggests a potential short-term pullback towards the $739.25 support level. A break below this level could trigger further downside. Conversely, a surge above the all-time high of $785.59 could signal renewed bullish momentum and propel the price towards the $813.30 resistance level.
Sources: TradingView, Reuters, Costco, Zack’s, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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