A Bull And Bear Analyze Costco's Q1 Earnings Print

Costco Wholesale Corporation COST reported Thursday its fiscal first-quarter earnings, highlighted by a sales miss amid a more competitive environment, especially in the fresh-grocery category.

Here is a summary of what two analysts on opposite sides of the trade are saying after the print.

The Analysts

BMO Capital Markets' Kelly Bania maintains an Outperform rating on Costco with an unchanged $258 price target.

Wells Fargo's Edward Kelly maintains at Market Weight, price target lowered from $235 to $220.

BMO: Print Was Solid

Costco's earnings report was "solid" for three key reasons, Bania said in a note.

Multiple metrics came in ahead of expectations, including EPS growing 19 percent from a year ago and gross margin down 50 basis from last year and includes a negative gasoline mix-shift.

Costco showed its membership metrics remain "quite strong," highlighted by renewal rates up 10 basis points to 90.5 percent in U.S. and Canada and 88 percent worldwide, executive penetration reached 38 percent and customer traffic up 4.9 percent total and ticket up 2.4 percent.

Gas margin likely underperformed its competitors, but Bania said the company's typically lower gas price will continue to drive membership loyalty and future traffic.

Wells Fargo: Another Disappointing Quarter

Costco delivered yet "another somewhat disappointing quarter" and signals an inability to take full advantage of a "significant" comp sales performance, according to Kelly said. The top line performance was "good" but when factoring in the recent membership fee increase (MFI) and strong fuel earnings the line is no longer impressive.

Costco's operating earnings likely only improved by a low-to-mid-single digit range when excluding MFI, labor investment and other charges. Costco's EBIT performance fell short of expectations for the second straight quarter.

Bottom line, investors have reason to be concerned with a softer than expected flow-through from the top line along with margin pressure and what could prove to be a peak valuation for the stock.

Price Action

Costco's stock was trading lower by more than 7 percent Friday morning at $208.86 per share.

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Photo credit: Tony Webster from Minneapolis, Minnesota, Costco Store, via Wikimedia Commons