Costco Stock Outlook After Membership Renewal Progress

Have you ever walked out of a warehouse club with a cart that somehow got heavier than planned and still felt like you won? That is the strange magic behind this business, and it is also why the latest earnings report landed with such a mixed thud. Revenue beat. Earnings beat. Renewal rates inched higher. And yet the stock barely budged after hours, which tells you the market is no longer impressed by the usual Costco rhythm. I’ve been watching this name long enough to know that the membership engine is the whole story. When that engine hums, the valuation looks almost reasonable. When it coughs, even a clean sales print starts to look expensive.

What The Latest Quarter Actually Changed

Total revenue in the August quarter climbed 11.1 percent year over year to $95.72 billion, ahead of the $94.86 billion that analysts had penciled in. Adjusted earnings per share rose 15 percent to $6.75 and still cleared the bar after stripping out a 15-cent lift tied to tariff refunds. On paper, that is a win. In practice, it was not enough to quiet the argument that has followed this retailer for months: is membership growth losing altitude just as the stock still trades like a growth compounder?

Membership fee income grew 7.3 percent to $1.85 billion, a hair below the $1.86 billion estimate. That sliver of a miss would not matter at a cheaper multiple. At this valuation, it matters. Paid members reached 84.1 million, a 3.8 percent year-over-year increase that missed expectations and continued a stretch of slower annual growth. The prior three quarters of fiscal 2026 printed 4.1 percent, 4.8 percent, and 5.2 percent. You can see the slope. It is not a collapse. It is a fade, and fades are what premium retailers get punished for.

Renewal rates showed improvements again this quarter, with the increasing executive penetration likely to help improve those rates in the future.

– Company leadership on the earnings call

That quote is the part bulls will tape to the fridge. Worldwide renewals ticked up to 89.8 percent from 89.7 percent, where they had sat for three straight quarters. The U.S. and Canada rate moved to 92.3 percent from 92.2 percent. Tiny numbers. Meaningful direction. In my experience, membership businesses live or die on those tenths of a point because they compound into lifetime value. One quarter does not prove a turn. Two or three in a row just might.

Why Executive Members Matter More Than Headcount

Paid membership missed. Executive membership did not. The higher-tier base rose to 43.2 million? Wait, 42.3 million, an all-time high. Those members pay $130 a year instead of $65. They also tend to renew more reliably and spend more once they are inside the building. If you care about the quality of the club rather than the raw count of cards in wallets, this is the better number.

There is a simple way to think about it. A basic member can wander in for paper towels and gasoline. An executive member is more likely to treat the warehouse as a weekly operating system. That difference shows up in renewal math over time. Management all but said as much. Higher executive penetration should support future renewal rates. I buy that logic. I just want to see it show up in paid member growth too, because a maturing footprint cannot live on mix forever.

• Worldwide renewal rate: 89.8 percent, up from 89.7 percent
• U.S. and Canada renewal rate: 92.3 percent, up from 92.2 percent
• Paid members: 84.1 million, up 3.8 percent year over year
• Executive members: 42.3 million, a new high
• Membership fee income: $1.85 billion, up 7.3 percent

Younger Shoppers, Digital Sign-Ups, And A Quiet Risk

Here is the part I find most interesting, and a little messy. The company is clearly resonating with shoppers under 40. That cohort has grown nearly 60 percent since the pandemic period and now makes up more than a quarter of the total member base. Capturing people early is how you build lifetime value. That is the good news.

The less tidy news is how they join. Younger members are more likely to sign up online. Online sign-ups tend to churn at a higher rate than in-store sign-ups. So the same trend that looks like a demographic win can also explain why renewal rates felt wobbly for a few quarters. It is not that the brand suddenly lost its grip. It is that the funnel changed. Digital acquisition is faster. It is also leakier.

Management noted that these younger members start out spending a little less and then grow into higher-spending households. That tracks with what you see in real life. A twenty-something apartment dweller does not need a 36-pack of anything. A thirty-something household with kids suddenly does. If the company can keep those members long enough to hit that life stage, the math works. If digital churn clips them first, the mix story gets harder.

AI Search Is Becoming A Real Traffic Source

This quarter also offered one of those details that sounds like a footnote until you sit with it. Traffic to the site from AI search grew triple digits for the second straight quarter and carried the highest conversion rate of all site traffic. Membership itself ranked among the top items originated from those searches. That is a sentiment signal as much as a channel signal. People are not just asking machines where to buy bulk snacks. They are asking whether the card is worth it, and the machines are sending them toward yes.

I would not build a thesis on AI referrals alone. The base is still small versus other channels. But conversion quality matters, especially if younger shoppers are already living inside those tools. If the membership pitch travels well in that environment, it could offset some of the digital churn problem. Perhaps the most interesting aspect is that the company is not treating this as a gimmick. It is watching influence, conversion, and product discovery in the same breath.

Sales Held Up Even After You Strip Out The Easy Stuff

Comparable sales rose 9.4 percent in the fiscal fourth quarter, ahead of the 9 percent expectation. Traffic increased 3.3 percent and ticket size rose 5.9 percent. That is the headline. The more honest version is the adjusted print. After pulling out foreign exchange and gasoline prices, comps increased 6.7 percent and ticket size was up only 3.3 percent. Still solid. Less fireworks.

Digitally enabled comparable sales jumped 19.5 percent, or 19.8 percent on an adjusted basis, as site and app traffic rose 30 percent. That digital acceleration is doing real work. It also fits the younger-member story. People who discovered the club on a phone are more likely to keep shopping on a phone. The warehouse remains the profit engine. The app is becoming the habit loop.

Gross margin contracted 11 basis points to 11.02 percent. Exclude the impact of gas price inflation and it was actually up 20 basis points. Operating margins improved from the year-ago period. None of that screams deterioration. It does scream a business that still lives close to the bone on merchandise profit and makes its real money on membership discipline plus relentless volume.

Gasoline Remains The Unsung Traffic Machine

The gas business had a record year. Penetration of U.S. member households that bought fuel hit an all-time high. Management estimated members saved more than $3.2 billion versus average pump prices in the markets where the company operates. Fuel is barely profitable on its own. That is not the point. The point is the detour. People pull in for cheaper gas and then remember they also need chicken, detergent, and a suspiciously large bag of pecans.

If you have ever stood in that line, you already know the behavior. The warehouse is designed to convert a fuel stop into a basket. In a year when pump prices swung hard after geopolitical shock, that draw became even more useful. I would not call gasoline a growth story. I would call it a loyalty device that still works in a value-hungry cycle.

Warehouse Growth Is Not Done, Even If The Map Looks Crowded

The company opened 12 new warehouses in the quarter, or 11 excluding a relocation in Taiwan. For the full fiscal year it opened 28, or 25 excluding three relocations. The plan for the next fiscal year is another 28 openings and five more relocations. There are 939 locations worldwide, concentrated in the United States, Canada, and Mexico, with additional presence in Europe, Asia, and Australia.

Leadership still talks about significant room for new warehouses. New markets such as Buffalo and Lawrence can bring more first-time members. Infill sites in mature markets bring fewer new sign-ups but reach sales and profit maturity faster. That split is important. People who only look at unit growth miss the return profile. An infill box can look boring on a membership slide and still be an excellent use of capital.

Capital spending is set to rise to $7.5 billion next fiscal year from $6.4 billion in the year just finished, supporting a push toward 30 net new openings a year. Starting in 2028, the pace of capex growth should slow. That sequence sounds like a company trying to harvest a remaining white-space window without pretending the map is infinite.

1. Open in true white-space markets to recruit new members.
2. Infill dense regions to squeeze more sales from existing loyalty.
3. Keep returns high enough that each building pays for the next wave.
4. Let capex growth cool once the easier sites are spoken for.

The Valuation Problem Has Not Gone Away

Shares finished the regular session at $896.48, down about 18 percent from the mid-May high. A major general-merchandise rival is down almost 20 percent over the same stretch, so this is not a one-stock tantrum. The multiple investors will pay for these earnings has compressed. That is why one research view stayed at a hold-equivalent rating while cutting the price target to $1,050 from $1,100. The message was not “sell the business.” It was “the easy rerating is over until membership follow-through shows up.”

I’ve found that premium retailers get no credit for being fine. They get credit for being obviously fine for several quarters in a row. One tick higher in renewals is a start. Paid membership still missed. Growth in the member file is still slowing. Against ongoing affordability pressure, the value proposition should keep people coming. That is the bull case in one sentence. The bear case is that a maturing club model cannot keep justifying a scarcity multiple if unit growth and member growth both cool.

This was not a squeaky clean quarter, but there were several notable positives, especially in renewal rates and the higher-tier membership mix.

That is the honest middle. Not a disaster. Not a victory lap. A company doing what it always does, while the market asks whether always is still enough.

How Affordability Still Plays Into The Thesis

High inflation made the treasure-hunt-plus-staples model look brilliant. Prices have cooled in some categories and stayed sticky in others. Households are still hunting for value. A membership fee can feel like a hurdle until the first few trips make it look cheap. That psychology has not vanished. If anything, a more cautious consumer can push traffic toward operators that are famous for buying power.

The risk is that value-seeking shoppers also become more willing to comparison-hop. Warehouse clubs used to feel like a closed loop. Now grocery apps, delivery, and rival clubs all compete for the same weekly budget. Costco still has a narrower assortment and a sharper price reputation. That remains an edge. Edges erode if membership growth keeps decelerating while competitors copy the playbook in bits and pieces.

What Would Make The Stock Easier To Own

If I am being blunt, the next few reports need to do two things at once. First, keep the renewal rate moving up, not sideways. Second, stabilize paid member growth so the 3.8 percent print does not become 3.2 percent and then 2.9 percent. Mix can carry a lot. It cannot carry a narrative forever.

Digital conversion from AI search is a nice supporting actor. Gasoline traffic is a useful extra. New boxes in overlooked cities can refresh the member file. None of those extras replace the core question: are people still lining up to pay for access, and are they staying once they do?

Simple scoreboard for the next two quarters:
  Renewals: need another uptick, not a flatline
  Paid members: growth has to stop sliding
  Executive mix: keep rising
  Adjusted comps: hold in the mid-single digits or better
  Digital: stay in strong double digits

Hit most of that list and the compressed multiple can stabilize. Miss the membership pieces and the stock can keep chopping even after clean earnings beats. That is the uncomfortable truth of owning a high-quality retailer at a high-quality price.

A Practical Way To Think About The Business Model

Strip away the warehouse romance and you are left with a fee business wrapped around a low-margin merchandising machine. The fee pays for discipline. The merchandising machine pays for habit. Gasoline, rotisserie chicken, and limited SKUs are not cute details. They are traffic tools. When those tools work, members forgive the annual charge. When they work less well, the charge starts to look optional.

That is why I keep coming back to renewal rates instead of one-quarter sales fireworks. Sales can be juiced by fuel, currency, and a hot consumables cycle. Renewals tell you whether the club still feels necessary. This quarter said it feels a little more necessary than last quarter. Barely. Enough to stay constructive. Not enough to pretend the debate is over.

Competitors in the club channel and in broad-line retail will keep pressing on price and convenience. That pressure is not new. What is new is the combination of a richer valuation hangover and slower member-file growth. The company can still open stores, still take share in groceries, still convert younger households over time. Investors just have to accept that the next leg may look more like compounding than rerating.

Bottom Line For Anyone Still Sitting On The Sideline

The quarter was better than feared on operations and only slightly disappointing on the membership count that everyone had circled in red. Renewal rates finally budged in the right direction. Executive penetration hit a record. Younger members are finding the brand, including through AI-driven search. Adjusted comps held together. The expansion calendar still has years of work in it.

So why did the stock yawn? Because the market wanted a cleaner membership acceleration and did not get one. Because $1,050 as a revised target still implies patience, not urgency. Because an 18 percent drawdown from the spring high has not fully reset expectations after years of looking unstoppable.

If you like owning great retailers and can live with a hold-style stance, this report did not break the thesis. It also did not crown a new up-cycle. Watch the next two membership updates the way some people watch weather radar. The sales number will make noise. The renewal rate will tell you whether the clouds are actually moving off.

And if you are waiting for a dramatic signal, you may be waiting a while. This company rarely does drama. It does tenths of a point, another warehouse in a city you forgot about, and a shopping trip that ends with more in the cart than you meant to buy. That formula built one of the most admired retail engines on earth. The question now is simpler and colder. Can that formula still justify a premium while the membership curve flattens in plain sight?