Costco Delivers Solid Quarter but Shares Slip as Valuation Concerns and Sales Miss Weigh

Costco Wholesale reported fiscal fourth-quarter results that

Headline Results and Same-Store Sales The

The slight miss relative to consensus—forecasts called for 5.9% total comps—was enough to pressure the stock. It marked the second consecutive quarter of softer-than-expected comp growth, raising questions about whether Costco’s traffic momentum is flattening. While a 5.7% comp increase is strong by broader retail standards—Walmart’s U.S. comps rose 4.6% in its latest quarter—it fell short of the company’s own high bar.

Margins and Membership Costco’s gross margin rate improved to 11.13%, with broad-based gains across fresh foods, sundries, and nonfoods. Core-on-core margin expanded by 29 basis points, aided by supply chain improvements and increased penetration of Kirkland Signature products. SG&A expenses ticked up slightly to 9.21%, reflecting wage investments and liability charges, but management noted productivity gains helped offset some of the pressure.

Membership income was a highlight, rising 14% year-over-year to $1.72 billion. Executive members now total 38.7 million, representing nearly half of all paid members and driving more than 74% of sales. Costco’s recent decision to introduce exclusive shopping hours for Executive members and perks such as a $10 Instacart credit has spurred upgrades. CEO Ron Vachris noted the policy added roughly 1% to weekly U.S. sales since its introduction in late June with minimal added costs.

Still, renewal rates dipped slightly. CFO Gary Millerchip explained the decline is linked to the growing proportion of online sign-ups, which historically renew at lower rates. While management expects some continued softness in renewal, efforts to boost auto-renewal and engagement are underway. Analysts remain confident Costco can sustain strong fee income growth given new store openings and upgrades.

Expansion and Strategy Costco opened 10 new warehouses in the quarter, ending the fiscal year with 914 worldwide. Management plans to open another 35 locations in fiscal 2026, including five relocations. Vachris highlighted the company’s ongoing opportunity to expand both domestically and abroad, with net sales for the fiscal year just under $270 billion and e-commerce sales surpassing $19.6 billion.

The retailer also continues to invest in technology upgrades, including checkout improvements, data augmentation, and passwordless app sign-ins. These investments, alongside enhanced e-commerce capabilities, drove digitally enabled sales above $27 billion in fiscal 2025. Costco also leaned into its brand strength, celebrating the 30th anniversary of Kirkland Signature and extending the rollout of Coca-Cola in its iconic $1.50 hotdog combo across food courts nationwide.

Market Sentiment and Risks Despite these positives, sentiment was cautious. Analysts pointed to valuation as a central concern. Costco trades at about 47 times forward earnings—well above peers and its historical average. Investors have long been willing to pay a premium for Costco’s steady growth and market share gains, but back-to-back comp misses sharpen the focus on whether such multiples are sustainable.

Tariff risks add another layer of uncertainty. Management acknowledged potential impacts from recent announcements on imported goods but emphasized supply chain adjustments and assortment changes could help mitigate costs. Inflation and renewal rate trends also remain watch points.

Analyst and Management Views BMO Capital reiterated its Outperform rating and $1,175 price target, highlighting Costco’s consistent EPS growth and international white-space opportunity. While acknowledging the dip in renewal rates, BMO expressed confidence in the company’s ability to drive long-term value through membership perks and expansion.

Management’s tone on the earnings call was upbeat. Vachris emphasized continued market share gains and adaptability to changing consumer behavior. “We remain confident in our ability to grow by delivering high-quality items at the best value for our members,” he said. Millerchip underscored membership fee growth and international expansion as key levers for the coming year.

Technical Picture The stock’s reaction underscores how elevated expectations leave little margin for error. Pre-market trading saw shares slide to $927, breaking below recent support and marking their lowest level since April. If selling persists, the April low of $871 will become a focal point for technicians. While Costco’s fundamentals remain solid, valuation and near-term technicals suggest shares may need to consolidate before regaining momentum.

Bottom Line Costco delivered another strong quarter on paper, with an EPS beat, steady comp growth, robust membership income, and margin gains. But in a market that demands perfection from high-multiple stocks, small misses on same-store sales were enough to drive shares lower. With expansion plans intact and membership trends broadly positive, Costco’s long-term trajectory remains compelling. Near term, however, valuation concerns and technical pressure could keep the stock range-bound until the next catalyst emerges.