Costco’s May 28 Earnings Could Signal If the Growth Story Is Gaining Speed

The market has already priced in a solid quarter. After Costco's second-quarter report, the stock's flat performance signaled that the beat was fully anticipated. The company delivered revenues and EPS in line with analyst expectations, a result that supported the existing growth forecast but didn't surprise the Street. This sets the stage for the upcoming Q3 earnings on May 28, where the real test is whether management can raise the bar.

Analysts are forecasting an 8.6% earnings growth rate for the company. The Q2 print aligns with that trajectory, meaning the market's baseline expectation is for steady execution, not a breakout. For the stock to move meaningfully higher from its current level, the company needs to deliver a guidance raise that justifies its premium valuation. A simple beat of the whisper number won't be enough; investors will be looking for evidence that the growth story is accelerating.

The setup is clear. The expectation gap isn't about missing a target; it's about meeting it while offering a clearer path to exceed it. The upcoming report is the next major catalyst, and the whisper number is set for a beat, not a blowout.

The Flywheel's Current Speed: Growth Drivers and Headwinds

The current growth trajectory is a story of strong engines and subtle friction. The market is pricing in steady execution, but the sustainability of that growth hinges on whether these engines can accelerate or if headwinds are starting to slow the flywheel.

Digital sales remain the standout performer, with digitally-enabled sales growing 22.6% last quarter. That's a powerful growth engine, but its absolute impact is still small. It contributes a fraction of total revenue, meaning even rapid digital expansion won't move the needle for overall comps yet. For now, it's a promising signal of future potential, not a current driver of massive top-line growth.

The real growth engines are international. Canada comps rose 10.1% and Other International sales jumped 13.0% last quarter. These are the segments where the company is seeing the most acceleration. Yet, they face tangible headwinds. International growth is exposed to currency volatility and local economic conditions, which can pressure margins and comp growth. The recent 17.9% surge in Other International sales for February shows the potential, but it also highlights the volatility from events like Lunar New Year shifts that can distort quarterly comparisons.

Meanwhile, the core U.S. business is steady but not accelerating. The 5.9% U.S. comparable sales growth is solid and in line with expectations, but it's not showing signs of breaking out. This raises a key question: what is the ceiling for the established membership model? At some point, the growth from existing members and warehouse count will naturally slow unless the company can find new sources of demand or significantly increase spending per visit.

The bottom line is that the current setup is a balanced one. Strong international and digital growth provide a buffer, while the steady U.S. core offers reliability. The expectation gap for Q3 isn't about growth disappearing; it's about whether the company can demonstrate that these growth engines are gaining speed, not just maintaining their current pace.

Valuation and the Guidance Reset Catalyst

The stock's premium valuation is the central fact of the upcoming earnings game. Costco trades at a P/E Ratio of 52.64, a multiple that prices in high and sustained growth. This isn't a valuation for steady execution; it's a bet on acceleration. For that bet to hold, the company needs to deliver a guidance raise that justifies the multiple. A simple beat of the whisper number, like the $0.07 EPS beat in Q1, reinforces the "priced in" narrative and is unlikely to move the needle.

The primary risk is a guidance reset to the downside. If growth slows without a corresponding valuation reset, the market will have to sell the news. This dynamic is already baked into the stock's sensitivity. The modest Q1 beat didn't spark a rally because the market had already anticipated it. The expectation gap for Q3 isn't about missing a target; it's about whether management can raise the bar high enough to support the current price.

The catalyst is clear. The upcoming Q3 report on May 28 is the next major opportunity for management to signal that the growth story is gaining speed. Any guidance that aligns with or exceeds the current 8.6% earnings growth forecast will be seen as a baseline. To move the stock meaningfully higher, the company needs to point to a path where that growth rate itself is accelerating. Without that, the premium multiple leaves little room for error.

Catalysts and Risks: What to Watch for the Next Move

The May 28 earnings report is the next major catalyst, and the market will be dissecting every detail for signs that the growth story is accelerating. The expectation gap will narrow only if management provides evidence that the current trajectory is not the ceiling.

The primary watchpoint is the Q3 comparable sales growth. The market is pricing in steady execution, so a print near the Q2 7.4% rate will be seen as a baseline. The real signal will be acceleration or deceleration. Investors need to see the flywheel gaining speed, not just turning. This means focusing on the U.S. and digital segments. While international growth is strong, the U.S. comp is the core engine. Any weakness there would widen the gap. Conversely, a digital sales beat would reinforce the narrative of future expansion, even if its current impact is small.

Beyond the headline number, management commentary on membership fees and international expansion plans will be scrutinized for hints of new growth vectors. These are the potential catalysts that could justify the premium valuation. Any forward-looking comments that suggest a path to higher fee revenue or accelerated international rollout would be a positive signal. Silence or caution on these fronts would be a red flag.

The key catalyst for a stock move is guidance. The market has already priced in an 8.6% earnings growth rate. To move higher, the company needs to point to a path where that rate itself is accelerating. The critical question is whether management provides a Q3 EPS guidance range that exceeds the current analyst consensus. A guidance raise would be a clear signal that the growth story is gaining momentum. A guidance range that merely meets expectations would likely be seen as a "sell the news" event, reinforcing the idea that the good news is already priced in.

The bottom line is that the setup is binary. The stock's premium multiple leaves little room for error. For the expectation gap to narrow, the report must deliver not just a beat, but a clear signal that the growth trajectory is bending upward. Any guidance that aligns with or exceeds the current forecast will be viewed as a baseline. To move the needle, management needs to point to a path where that growth rate itself is accelerating. Without that, the premium multiple leaves little room for error.