Costco (COST -0.04%), the world's largest warehouse club retailer, posted its latest earnings report on Sept. 25. For the fourth quarter of fiscal 2025, which ended on Aug. 31, its revenue rose 8% year over year to $86.2 billion and exceeded analysts' estimates by $100 million. Its earnings rose 11% to $5.87 per share and also cleared the consensus forecast by $0.06.
Those headline numbers were healthy, but Costco's stock still dipped after the report and remains about 15% below its all-time high of $1,078 from this February. Let's see what's working for the retail giant -- and if you should buy its stock after its post-earnings pullback.
Image source: Getty Images.
Costco's core numbers are still rising
As a warehouse club retailer, Costco generates most of its profits from its high-margin membership fees. That's why it can afford to sell most of its products at low, breakeven, and loss-leading margins. It leverages its scale to negotiate favorable bulk rates with its suppliers, and it attracts cost-conscious consumers with its bulk products.
To maintain a tight control over its inventories and costs, Costco carries a narrower range of products than superstores like Walmart (NYSE: WMT). To differentiate itself from its competitors, it sells its private label Kirkland products. It further increases the stickiness of its memberships with its food courts, gas stations, vision centers, and other ancillary services. For Costco to keep growing, it needs its comparable store sales to keep climbing as it opens new warehouses, gains new cardholders, and maintains high renewal rates. All four of those key performance metrics have consistently risen over the past few years.
|
Metric |
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
FY 2025 |
|---|---|---|---|---|---|---|
|
Adjusted* comps growth |
9.2% |
13.4% |
10.6% |
5.2% |
5.9% |
7.6% |
|
Total warehouses |
795 |
815 |
838 |
861 |
890 |
914 |
|
Total cardholders |
105.5M |
116.1M |
118.9M |
127.9M |
136.8M |
140.6M |
|
Global renewal rate |
88% |
89% |
90% |
90.4% |
90.5% |
90.5% |
Data source: Costco. *Excludes fuel sales and foreign exchange rates.
Costco grew through the COVID-19 pandemic, which drove more consumers to stock up on household products; and the spike in inflation, which brought in more cost-conscious shoppers. It raised its membership fees for the first time in seven years last September, but that price hike didn't reduce its global renewal rate or prevent it from gaining new members.
What are Costco's catalysts for fiscal 2026?
Costco plans to open 35 new warehouses (including five relocations) in fiscal 2026, roughly split in half between the U.S. and its international markets -- which include Canada, Mexico, Asia, and Europe. That's higher than its previous rate of 25-30 new warehouse openings per year. It will also continue to expand its e-commerce platform -- which is growing faster than its brick-and-mortar stores -- with fresh features for its app and technological upgrades across its logistics network.
Costco also expects to gain more high-value executive members, which grew 9% year over year to 38.7 million in the fourth quarter. Those members get annual rewards on certain purchases, monthly credits for same-day and Instacart orders, exclusive discounts for its ancillary services, access to earlier shopping hours, and other perks.
During the conference call, CFO Gary Millerchip said that "despite the current macroeconomic uncertainty," Costco was still "confident" in its "ability to grow market share" in fiscal 2026. Costco's management didn't provide an exact revenue or earnings outlook for fiscal 2026, but analysts expect its revenue and EPS to rise 8% and 10%, respectively.
Why did Costco's stock pull back?
Costco's business is still firing on all cylinders, but three challenges weighed down its shares. First, its stock still looks expensive at 47 times forward earnings. The bulls might argue that Costco deserves that premium valuation, but a lot of growth is already baked into its stock price.
Second, its adjusted comps growth of 6.4% in the fourth quarter marked a slight slowdown from its 8% growth in the third quarter. Lastly, the Trump administration's unpredictable tariffs could squeeze its margins over the next year and offset some of the benefits from its higher fees.
Those issues seem minor, but Costco's stock was already priced for perfection before its latest earnings report. So while Costco's stock might be worth nibbling on after its post-earnings pullback, investors should realize they're still paying a premium for its evergreen business.
