Tougher sales comparisons and food price deflation at Costco will cut into performance in 2019, according to Citigroup, which downgraded the membership-only retailer to neutral on Monday.
Citi analyst Kate McShane expects Costco to be a “standout” next year, but notes that the retailer faces “challenging comps in the coming months at a time when food deflation is coming into play.” At the same time, the contribution from e-commerce sales is diminishing and “the headwind from cannibalization may be ticking back up,” she said.
Shares of Costco fell 1.2 percent Monday following the Citi note; The stock is up more than 23 percent so far this year. McShane also cut her 12-month price target on shares of Costco to $238 from $257, implying 2.9 percent upside over the next year.
For fiscal year 2019, which for Costco ends in August, Citigroup projects earnings per share of $7.72, up 8.6 percent year over year and below consensus estimates of $7.74.
Currency pressure could be a sustained challenge, while gasoline said could be a lower contributor to reported same-store sales growth. “This is occurring as Costco implements wage increases and continues to invest in price, potentially pressuring margins,” the analyst added.
