Analysts Back Costco After Q3 EPS Miss; Cite Membership, Gas

Costco Wholesale shares fell after the retailer reported mixed results for its fiscal third quarter. Earnings per share missed Wall Street estimates by $0.06 while revenue exceeded forecasts. The stock declined in seven of the last eight trading sessions and traded near $949.50, its lowest close since late January. The price is about 13% below the record close of $1,094.32 reached earlier this month and remains up more than 10% year to date.

Costco reported a 12% increase in gasoline sales for the quarter. Excluding fuel, comparable-store sales rose 6.6%, slightly under the 6.7% analysts had expected.

The company maintained lower prices on many items, which put pressure on margins during a period of elevated costs. Analysts wrote that the pricing approach is intended to preserve member value and encourage renewals.

Mizuho analyst David Bellinger wrote that keeping prices low aligns with Costco’s long-standing strategy of maintaining customer loyalty and boosting membership renewals. Jefferies analyst Corey Tarlowe wrote, “Elevated gas engagement is reinforcing member loyalty and frequency, supporting both near-term comps and long-term ecosystem strength.”

D.A. Davidson analyst Michael Baker wrote that warehouse clubs account for roughly 5% of U.S. retail sales and have expanded at an average annual rate of 6% since 2007 and 11% since 2018. He noted Costco has grown about 9% annually since 2007 and added the stock to the firm’s best-of-breed list after the recent selloff.

Analysts pointed to recurring membership revenue and customer data from the membership program as advantages for merchandising and promotions. They also cited high barriers to entry for large-scale warehouse operations as a structural benefit for the business model.

Valuation remains a focal point for investors. The shares trade at about 42 times forward earnings and nearly 50 times trailing earnings in some assessments. Wall Street consensus forecasts call for double-digit earnings growth this fiscal year and the next.

Costco continued to return capital to shareholders while investing in price and service. Over the past five years the company distributed $19.7 billion in dividends and repurchased $3.2 billion of stock. Analysts cautioned that consumer sentiment and broader economic conditions will influence near-term results and described the recent price weakness as profit-taking after the stock’s run-up.