Let me be honest—when I saw Costco’s latest numbers flash across my screen late Thursday, my first reaction was “that’s it?” Not because the results were bad. Far from it. They were textbook Costco: clean beats on both top and bottom lines, margins ticking higher, traffic still growing. Yet the stock barely budged, down less than 1% after hours. If anything, that tiny dip told the whole story. The bar for this company has become absurdly high, and even a solid quarter isn’t enough to make the skeptics back off anymore.
Why One Good Quarter Isn’t Moving the Needle Anymore
In a world where almost every retailer would kill for mid-single-digit comparable sales growth, Costco delivers exactly that—consistently, predictably, almost boringly—and the market yawns. That’s the curse of trading at 43 times forward earnings. When you’re priced for perfection, even perfection feels like “meh.”
I’ve followed this name for years, and I can’t remember a time when the narrative around it felt this bifurcated. On one side you have the die-hard bulls (myself included most days) who see an unstoppable economic moat built on low prices, obsessive customer loyalty, and a membership fee flywheel that prints money. On the other side are the bears who keep whispering that the party is slowly winding down—that renewal rates are slipping, that comps are decelerating, that the valuation has finally run too far ahead of the fundamentals.
Thursday’s print didn’t definitively prove either side wrong. It was more like a Rorschach test: you could cherry-pick whatever fit your worldview.
The Numbers Were Actually Pretty Impressive
Let’s start with what went right, because a lot did.
- Total revenue hit $67.31 billion, up 8% year-over-year and about $170 million above consensus.
- Adjusted EPS came in at $4.50, a healthy 11% increase and $0.23 better than expected.
- Gross margin expanded 4 basis points to 11.32%—tiny, but in Costco’s low-margin world that’s meaningful.
- E-commerce sales jumped 20.5%—proof the digital piece isn’t standing still.
- Kirkland Signature continues to gain share; they rolled out 45 net new items in a single quarter.
Traffic rose 3.2%, average ticket 3.1%. Both numbers slowed a touch from recent quarters, but together they produced 6.4% comparable sales growth excluding gas and FX. In virtually any other retail boardroom that slide deck would get a standing ovation.
“If you look at every individual month, there were only two months in that last seven months that were outside the range of 6 to 7%.”
— CFO Gary Millerchip on the conference call
Translation: don’t overreact to one soft month. Fair enough. I’ve seen Costco management steer through plenty of noisy data points over the years and they’re usually right.
But the Membership Story Is Getting Harder to Ignore
Here’s where the bears sharpen their claws. Paid memberships grew to 81.4 million, but that missed estimates by a full million. Renewal rates dipped again—global to 89.7%, U.S./Canada to 92.2%. Tiny moves, yet they’ve been sliding for several quarters now.
Management blames the growing mix of online-only members, who tend to be younger and less sticky. Makes sense on paper. Still, when your entire model depends on near-100% renewal rates to fund those razor-thin merchandise margins, even a 0.1% slip feels like a little ominous.
The good news? Management said the decline was smaller than they feared, thanks to better email and push-notification campaigns to lapsing members. The bad news? They openly expect “slight” further declines over the next few quarters. That’s not the kind of language that sends a premium valuation higher.
November Comps Slowed—But Context Matters
Separate from the earnings release, Costco dropped its November sales update. U.S. comps (ex-gas) came in at 5.8%, down from 6.4% in October. That deceleration is what really spooked some investors.
Again, management pushed back hard: government shutdown fears in October/November may have weighed on big-ticket purchases, weather was weird in parts of the country, and one month does not a trend make. I tend to buy that argument—Costco’s track record of steady 5-7% comps goes back decades. One soft month rarely snowballs.
Still, perception is reality in a stock trading at these multiples. Walmart, for all its outperformance this year, still sits at “only” about 40 times earnings. The S&P 500 forward P/E is around 23-24. Costco is asking investors to pay nearly double the market for growth that, while reliable, isn’t accelerating.
So What Could Actually Change the Narrative?
That’s the million-dollar question (or in Costco terms, the million-membership question).
- A blowout December sales report on January 7 would help a lot. Holiday season is make-or-break for big-ticket and gifting categories.
- Evidence that renewal-rate targeted campaigns are actually bending the curve back up.
- Any hint of another membership fee increase in 2026—analysts think we’re getting close to the five-year mark since the last hike.
- Continued share gains vs. Walmart, Target, and club peers—Costco keeps taking wallet share even in a tough environment.
Short of that, the path of least resistance feels range-bound for now. The stock has already pulled back from its all-time highs around $1,080 toward $950. Valuation is slightly less insane, but hardly cheap.
The Long-Term Story Remains Intact
Look, I’m not suddenly turning bearish. Costco remains one of the best-run retailers on planet Earth. The combination of scale, pricing power, and membership economics is ridiculously hard to replicate. Inflation actually helped shine a spotlight on their value proposition the last few years, and I suspect deflationary pressures (if they arrive) will do the same—people still hunt for bargains when money feels tight.
International expansion is still in early innings. E-commerce is growing faster-growing piece of the pie. Kirkland penetration keeps marching higher. And perhaps most importantly, customer loyalty scores remain off the charts.
I sleep easy owning it for the long haul. But “long haul” and “next three months” are two different conversations. Right now the market wants proof that the slight slowdown is truly transitory and that membership trends stabilize.
Until we get that proof, expect the bears to keep growling—even if the underlying business keeps humming along just fine.
If you’ve stuck with me this far, you probably care about retail stocks as much as I do. Costco isn’t going anywhere, but the easy money has been made. From here, patience—or a catalyst—is required. I’ll be watching that December sales update like everyone else. See you on January 7th.
