Gas is expensive again. Costco members are filling up anyway.
Costco’s average selling price per gallon worldwide jumped 35.5% from a year earlier in October. Comparable gallons still grew at a high-single-digit pace, according to a Bank of America research report seen by TheStreet.
That’s the kind of loyalty most retailers can only dream about. It’s also a big reason Costco’s October sales numbers looked so strong.
Bank of America analyst Christopher Nardone, writing with Madeline Cech, kept his Buy rating in a Nov. 4 note titled “October comps shine.”
“Costco’s philosophy of leading with value and having a higher income core consumer gives us confidence share gains would continue in a price-sensitive backdrop,” wrote Nardone.
How strong was Costco’s October?
Last month was pretty strong for Costco, even before gas.
Net sales rose 12.6% to $24.50 billion for the four weeks ended Nov. 1, Costco said in its October sales release. U.S. comparable sales rose 8.1% excluding gas prices, and 7.3% for the whole company excluding gas and currency swings.
Digital sales grew even faster. Digitally enabled comparable sales rose 22.6%, excluding currency, up from 19.1% in September, the note showed.
Related: Costco’s latest coffee offering hones in on emerging trend
The mix shifted a little, though. Shopper traffic rose 4.1%, slower than September’s 4.7%. The average ticket rose 3.1%, up from 2.8%.
In plain terms, traffic growth cooled a bit, but baskets got bigger. That still adds up to a month most retailers would take in a heartbeat.
Steve Proehl / Getty Images
How much is Costco gas really doing?
Gas was more important to Costco’s bottom line than you might think. It lifted total company comparable sales by 3.9 percentage points in October, Nardone wrote. The gas business grew in the mid-40% range on higher prices and more gallons.
By my math, gas and currency together explain about a third of Costco’s 11.1% reported comparable sales growth. Strip them out, and you’re back to that 7.3%.
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Pump prices are easing a little. The national average for regular gas was $4.10 on Nov. 5, down 12 cents in a week, AAA reported.
If you already pay for a Costco membership, it’s worth checking the warehouse pump price before you fill up elsewhere. With gas near $4 a gallon, even a small discount per gallon is worth a detour.
Gas wasn’t the only add-on business growing. Ancillary comparable sales, which include gas, pharmacy and hearing aids, rose in the low- to mid-30% range, the note showed.
Why would DoorDash gift cards matter?
This is the sleeper detail in the note.
Non-food comparable sales rose by a high-single-digit percentage, led by gift cards, sporting goods, and housewares, Nardone wrote.
Costco sells DoorDash and Uber Eats gift cards, and both apps just got more useful to members. In mid-September, DoorDash and Uber Eats expanded same-day Costco delivery nationwide, with delivery available only to Costco members, the Associated Press reported.
DoorDash now offers more than 4,000 Costco products, Digital Commerce 360 noted.
“We think sales of DoorDash and Uber Eats gift cards could provide a comp tailwind going forward,” wrote Nardone.
Not every category is easy, though. Consumer electronics demand remains sensitive to price as higher memory costs push prices up, the note said. Canada also cooled, with comparable sales up 3.5% versus 4.9% in September.
China was a bright spot. Costco has called out China as one of its top international markets for four straight months, the note said.
Is the stock already priced for perfection?
Close to it.
Costco closed at $1,046.47 on Nov. 4, the note showed. Nardone’s $1,095 price objective implies just 4.6% upside, and the stock sits about 5% below its 52-week high of $1,096.50.
His target is based on 48 times estimated fiscal 2027 earnings. Costco’s 15-year average forward multiple is 31 times, with a peak of 56 times.
By my math, that target assumes a valuation about 55% richer than the stock’s long-run norm.
Nardone argues the premium is earned through steady same-store sales, strong membership renewals and international growth. He also lists real risks, including tariffs, Costco’s reliance on California, food inflation and tougher gas profit comparisons.
That last risk matters here. Gas helped make October look great, and gas prices are already falling.
For members, October is proof that Costco’s value pitch is landing. For investors, the stock price already assumes it keeps landing month after month.
Related: Costco’s longtime shoppers may not love what comes next
