Analysis

Why Costco Stock Gained 29% in the First Half of 2024

It’s already zooming higher in the second half after a highly anticipated fee raise.

Costco Wholesale (COST -0.29%) stock gained 29% in the first half of the year. The stock has been demonstrating incredible resilience, and sales growth is accelerating. It also issued a juicy special dividend to shareholders. And shareholders have been anticipating a lot more.

Costco is unstoppable

Costco enjoyed elevated sales growth early in the pandemic, and that decelerated when high inflation hit. There was a short lap period, and sales growth is accelerating again to even higher rates than before the pandemic.

In the 2024 fiscal third quarter (ended May 12), sales increased 9.1% year over year, with a 6.6% comparable sales increase and 20.7% increase in e-commerce. Costco has been expanding its e-commerce business, and it now serves as a strong overall growth driver. Earnings per share (EPS) rose from $2.93 to $3.78.

Costco also benefits from inflation in some ways because shoppers are looking for the best deals. Shopping frequency increased 5.5% in the third quarter, even though average transaction was up only 0.5%. Membership statistics were also healthy, with U.S. and Canada renewal rates of 93% and worldwide renewal rates of 90.5%.

The momentum continued in June, with a 7.4% year-over-year increase in sales, a 5.3% increase in comparable sales, and an 18.4% increase in e-commerce.

Costco issued a special dividend of $15 per share, its highest special dividend ever, in January. Costco’s regular dividend yields only 0.46% at the current price, because the stock price, which is inversely correlated with yield, has been soaring. The special dividend brings that up quite a bit.

What’s coming up next

Costco made headlines again yesterday with the announcement of a much-anticipated membership fee hike. It typically raises the membership every five years on average, and it’s already been seven since the last one. Management has said repeatedly that it knows shoppers are pressured, and it doesn’t need the money from the fee hike, but it would raise the fee when it felt that the higher incoming cash would add greater value to the shopping experience.

The price of an annual basic membership is heading to $65, up from $60, in September, and the executive membership is being raised from $120 to $130. Costco stock jumped even higher on the news, but the benefit of the fee hike will only begin to show up a few months from now. And investors needn’t worry, because these things will all happen again at some point.

Costco is an incredible, winning stock that should reward investors for many years.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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