Costco Stock Falls. Wall Street Is Disappointed in Earnings.

“Gross margin declined (99bps) year over year to 10.19%, missing Street’s 11.5% estimate driven by supply chain costs, raw material inflation, labor, and other headwinds,” said Cowen analyst Oliver Chen in a research note. Chen still rates the stock as Outperform, and added that to offset inflationary pressures, Costco will raise prices on goods that people appear willing to pay more for.

Shares for Costco were down 1.9% on Friday morning to $456.25. Coming into Friday trading, the stock has fallen 18.1% this year.

Costco’s Senior Vice President of Financial Planning, Robert Nelson, acknowledged the impact of rising costs. “Pressures from higher commodity prices, higher wages, higher transportation costs and supply chain disruptions, all still in play,” he said on the company’s earnings call.

Truist Securities analyst Scott Ciccarelli wrote in a research note that gas sales for Costco boosted top-line growth but also hurt the company’s gross margins.

“Customers flocked to Costco to take advantage of their rock bottom pricing. While this did positively impact overall revenues…and provided additional sales/sales leverage, the mix shift hurt,” Ciccarelli wrote. He maintained his Buy rating of Costco but raised his price target to $543 from $503.

Stifel analyst Mark Astrachan also maintained his Buy rating on Costco and wrote in a note that, “With ongoing supply chain pressure and input inflation…the company is navigating the environment better than most in our view, being deliberate in its approach to offset incremental costs.” His price target for Costco is unchanged at $515.

Write to Angela Palumbo at angela.palumbo@dowjones.com