Investors could hardly be more optimistic heading into Costco's (NASDAQ:COST) upcoming earnings report. Shares have been hovering around all-time highs as Wall Street continues to reward the warehouse giant with more premium valuations than peers like Walmart (NYSE:WMT) and Target (NYSE:TGT).

Costco will have to earn that premium this week by announcing positive metrics around sales growth, profitability, and membership trends when it reports earnings results on Thursday, May 30. Let's take a closer look.

A shopper browses the warehouse retailing aisles.

Image source: Getty Images.

No growth surprises

Investors already know a few important details about Costco's sales growth trends. Its monthly reports have hinted at continued market share gains in physical stores and solid results online. Comps rose 6% in the U.S. market in both April and May, after adjusting for fuel price swings, and that implies the chain will announce faster full-quarter gains than the 3.4% increase that rival Walmart recently posted.

Looking beneath that headline number, investors will be watching customer traffic trends to see if they held near the market-thumping 5% spike the chain reported in the previous quarter. News that Costco filled its warehouse aisles with shoppers and continued to grow e-commerce sales by over 20% would go a long way toward confirming investors' bullish reading on this business.

Pricing challenges

Several trends are combining to pressure Costco's earnings growth this year. Supply chain costs and labor expenses are on the rise, for one. The warehouse titan is dealing with tariff-based price spikes, too. Finally, the benefits from Costco's membership price increase are wearing off as the company moves further away from that raise.

Put together, these pressures might reduce operating margin in fiscal 2019, especially given that Costco makes it a point to protect its price-leadership position. Walmart sounded a cautionary note on this topic in mid-May as executives considered another potential tariff spike on the way. We'll find out on Thursday whether Costco agrees that trade war challenges will likely hurt profits this year.  

Watch membership trends

Costco is a subscription club first and a retailer second. That fact makes membership trends arguably more important for shareholders to follow than traditional retailing metrics like sales growth. If there's one number that predicts whether the retailer can grow even as more shopping shifts online, it's the rate at which members renew their annual subscriptions.

There's been nothing but good news on this score lately, with renewal rates inching up toward a record 91% over the last few quarters after hovering at around 90% in the previous two fiscal years.

Costco's Thursday report will show whether that key metric improved from last quarter's 90.7% in the U.S. market and the 88.3% rate the company enjoys across its global sales base. If it does increase, or holds steady, then investors aren't likely to see much of a negative impact from the cost issues plaguing the industry these days.

After all, most of Costco's earnings come from its membership fees, not the markup it charges for product sales. That income is also far more stable than retailing sales. Those facts help explain why Wall Street is valuing the chain's stock at a higher premium than Walmart and Target even though both rivals recently announced robust growth trends. More evidence of membership wins this quarter would pave the way for Costco's valuation gap to stretch further on into 2019 and beyond.

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