Costco: The Openings "Slowdown" Is a Misread — the 44x Multiple Is the Real Test

Costco spent the spring of 2026 giving shareholders two headlines that pulled in opposite directions. On May 19 the stock set an all-time high above $1,090; days later the company reported net sales of $69.15 billion, up 11.6 percent, with diluted earnings per share up 15.2 percent to $4.93, its strongest twelve-week stretch on record. By late August the shares traded near $945, down roughly 14 percent from that peak and roughly flat over the prior year.

The explanation that has followed the stock down is that Costco's growth machine is slowing — specifically, that it is opening fewer warehouses, and that a thinner stream of new doors is starting to crack the membership flywheel. It is a tidy story, which is a reason to check it against the numbers rather than accept it.

Start with the unit counts. Costco opened 27 net new warehouses in fiscal 2025 and originally planned 35 for fiscal 2026. That target has been cut, first to 28 net new after permitting delays on two buildings in Spain, and then to roughly 26, with exactly two locations pushed into fiscal 2027 rather than canceled. Management has repeated a five-to-ten-year plan of 30-plus net new warehouses a year, about half of them in the U.S. and the rest international, supported by a bigger real estate team and a shift toward converting existing buildings, infill sites, and relocations in dense cities where its classic 25-acre lot is hard to find. The fiscal 2026 dip is a couple of permits and a construction schedule, not a reduced ambition.

The warehouse count also overstates how much the next year's economics depend on new doors at all. Costco keeps merchandise margins deliberately thin and makes most of its money on the membership. In the fiscal third quarter, membership fee income of $1.373 billion, up 10.7 percent from a year earlier, covered just under half of the quarter's $2.815 billion of operating income. That recurring stream is what the flywheel actually is: pay an annual fee, get prices low enough to keep paying it, renew above 90 percent, repeat at scale. The recent reading of that engine is healthy. Paid memberships rose 4.1 percent to 82.9 million; the U.S.-Canada renewal rate was 92.2 percent, up 10 basis points sequentially; and the Executive tier, the higher-spending card, grew 9.6 percent to 41.2 million members — more than twice as fast as total paid membership — and now drives roughly 75 percent of sales. Deferred membership fees, cash already collected for future periods, rose to $3.157 billion from $2.854 billion in August 2025. At the current run rate the fee line alone is worth around $5.9 billion a year at estimated margins of 75 to 80 percent.

There is a genuine fault line in this engine, but it is not the warehouse count. Management expects the renewal rate to continue to decline because a rising share of new sign-ups come online, and online members have historically renewed at lower rates than people who join in a store. The renewal figure ticked up 10 basis points sequentially in the third quarter, and the company points to retention programs, but the drift is the bear case to watch: it erodes membership fee growth even as total accounts climb.

The structural constraint behind the openings story is different and more durable. Costco already operates in all but three states, with 135 warehouses in California alone, so the 30-plus annual target is increasingly a global buildout, with roughly half of future openings expected outside the U.S. New units still pay for themselves: the fiscal 2025 cohort generated about $192 million in first-year annualized sales, up from roughly $150 million two years earlier. But as domestic geography fills, the flywheel's forward motion shifts to spending per member — Executive upgrades, a digital channel that posted 21.5 percent comparable growth in the fiscal third quarter and 17.7 percent in July, and periodic dues increases spaced years apart, the most recent taking Gold Star to $65 and Executive to $130 on September 1, 2024.

Which brings the argument back to price, where the openings worry was really a valuation worry all along. Costco did not fall because unit growth stalled; it fell because the stock had run to roughly 50 times forward earnings in the spring, a multiple that assumed years of flawless compounding. The pullback corrected part of that. The shares now trade at roughly 42 to 44 times forward earnings — still far above the consumer staples group's roughly 26 times and Walmart's roughly 37 times trailing — against a consensus path of about $18.21 in per-share earnings for fiscal 2025, near $20.50 for fiscal 2026 and $22.50 for fiscal 2027, with the growth pace easing toward roughly 10 percent by fiscal 2028 and 7 percent by fiscal 2029. The business quality is not the dispute: return on equity near 29 percent, more cash than debt, and roughly $8.8 billion of trailing annual free cash flow. The question is whether 44-ish times forward earnings leaves room for a quarter where comparable sales wobble. A 4.2 percent single-day drop in July, after a cooler monthly sales report, showed how little forgiveness the tape grants.

So the answer to the openings question is no, with a genuine caveat. Two delayed warehouses do not undermine a model that takes in roughly $5.9 billion a year in membership fees at high margins and renews above 90 percent; selling the stock because one year of unit growth dipped a couple of points would be betting against the strongest unit economics in retail. But the reset from $1,096 to $945 was partial, and roughly 44 times forward earnings still prices near-perfect compounding into a business whose growth slope is flattening by design. The test lands September 24, when Costco reports its fiscal fourth quarter, with July still growing — net sales up 10.7 percent to $23.12 billion and comparable sales up 8.9 percent. The report answers three things: whether management confirms a 30-plus-unit buildout for fiscal 2027, whether membership fee dollars stay in double-digit growth, and whether traffic holds. A confirmed buildout with steady fee growth would argue the pullback oversold a timing detail. A first guide below 30 units, or fee and comp growth that slips, would argue the multiple has further to compress. Neither is knowable before the report — which is why the evidence-first move is to let September 24 decide, and why at this multiple the stock is a watch, not a buy-the-dip on faith.