Costco has favorable set up going into Q1 earnings report, analysts say

UBS reiterated a Buy on Costco ahead of its fiscal Q1 report with a $1,205 12-month price target (roughly 34% upside), saying the membership retailer is well positioned after a strong holiday run driven by steady sales, market-share gains and promotional initiatives. UBS models a net sales rise of 8.2%, core comparable sales +6.4% and EPS of $4.39 (vs. $4.28 consensus), highlights that comps have averaged ~6.5% recently with over half driven by traffic, and cites a roughly 7% membership-fee tailwind from prior increases. The firm expects modest gross-margin expansion to 11.32% of sales, SG&A around 9.4%, and notes nine consecutive quarters of year-over-year operating-margin improvement, while flagging slightly weaker renewal rates among digitally acquired members as a near-term headwind but concluding Costco has a favorable setup supported by scale and operational levers.

Analysis

UBS reiterated a Buy on Costco ahead of its fiscal Q1 report due after markets close Thursday and set a $1,205 12‑month price target, implying roughly 34% upside from the last close. The firm cites sustained holiday momentum supported by promotions such as the “12 Days of Precious Metals” and restocked giftable items, and characterizes Costco’s current setup as favorable for continued share gains.

UBS highlights concrete operating trends: comparable sales have averaged ~6.5% over the past six months with over half of the gains driven by traffic, and it models fiscal Q1 net sales up 8.2% with core comps +6.4% (slightly above consensus). UBS also projects EPS of $4.39 versus a $4.28 consensus and notes a ~7% contribution from a prior membership fee increase in the prior quarter.

Profitability is a core bullish point with nine consecutive quarters of year‑over‑year operating margin expansion, last year’s quarterly margins at their highest in over 30 years, and UBS forecasting gross margin of 11.32% of sales and SG&A at 9.4%. The firm flags a near‑term risk: worldwide renewal rates have moderated, notably among digitally acquired newer members, which could pressure future membership income if the trend continues, but UBS maintains that scale and operational levers support margin sustainability.

Key Decisions for Investors

• Consider a modest add-to-position ahead of the print only if your portfolio can tolerate a premium valuation given UBS’s $1,205 target and the firm’s above-consensus sales and EPS forecasts
• Use the report as a catalyst to reassess sizing: trim or hedge if reported net sales, core comps, or EPS materially miss UBS’s model of +8.2% sales, +6.4% comps and $4.39 EPS
• Monitor membership metrics and renewal rates for digitally acquired members and margin line items—specifically gross margin (UBS at 11.32% of sales) and SG&A (9.4%)—as primary indicators of sustainability
• If results confirm top-line strength and continued margin expansion, consider adding on strength; if renewal rates deteriorate or margin drivers weaken, reduce exposure or employ downside protection