By Sabrina Escobar
While Costco Wholesale posted solid fiscal first-quarter earnings, investors' reaction was muted, likely a reflection of hopes that the company would post even stronger numbers.
Costco's earnings per share for the quarter ended Nov. 23 were $4.50. The consensus call among analysts tracked by FactSet was for $4.27.
Revenue was $67.3 billion. Analysts were expecting $67.14 billion. First-quarter sales -- a figure that excludes membership fees -- rose 8.2% year over year, the company said.
Meanwhile, total-company comparable-store sales increased 6.4% from a year ago, slightly better than projections for a 6% increase. The fall holidays helped Costco's sales -- the company's food courts in the U.S. set a daily record on Halloween, selling 358,000 whole pizzas, said Gary Millerchip, Costco's chief financial officer. And in the three days leading up to the Thanksgiving weekend, Costco sold 4.5 million pies.
Costco's digital business, which skews toward discretionary products, also did well as consumers stocked up on gifts and decor. Black Friday was a record-breaking day for the U.S. ecommerce business. Throughout the quarter, sales in gold, jewelry, small electronics, and apparel all grew double-digits year over year.
"Looking ahead, we are encouraged by the broad-based sales momentum that COST is experiencing, and continue to believe COST provides immense value, which should drive healthy comp growth ahead," wrote Corey Tarlowe, an analyst at Jefferies.
Despite the beat, shares were down 0.6% in after-hours trading on Thursday. Costco stock is off about 4% this year as of Thursday's close, a surprising reversal for a company that has long outperformed the market. Over five years, the shares have gained 135%, outstripping the S&P 500's 88%.
The shares' lackluster performance this year suggests that Wall Street is starting to doubt Costco's ability to outperform the market -- all while still commanding a pricey valuation. Shares now trade at about 43 times the next 12 months' earnings, down from their recent highs of 57 times earnings. That's still significantly higher than the S&P 500's multiple of 22.5 times, according to Dow Jones Market Data.
There seems little outwardly wrong with the company's performance. The discount retailer ha s continued to grow both profit and revenue at a healthy clip, maintaining its reputation as one of the few companies in the consumer space that delivers consistent results.
Indeed, Costco's recent monthly sales report saw headline comparable-store sales increase by a little over 6% throughout the fall months. That result suggests demand remains healthy and that the company continues to gain market share.
But some analysts are worried that Costco's membership renewal rates have also started to moderate. In the fiscal fourth quarter, the renewal rate ticked down to 89.8% from 90.2% in the third quarter, which UBS analyst Michael Lasser says was the largest quarter-over-quarter decline in at least 15 years . The renewal rate was 89.7% in the fiscal first quarter.
Costco's management team attributed the decline to more people signing on for memberships online, noting that online members renew at a slightly lower rate, on average. Executives added that they expect renewal rates to keep ticking lower until these trends stabilize, and said that this quarter's decline was less than anticipated thanks to targeted marketing to soon-to-expire members.
Investors were also worried about how tariffs will affect Costco's operating costs and margins, Lasser added. The company recently sued the Trump administration in a bid to ensure a tariff refund in the case that the Supreme Court rules against the new import tariffs.
Encouragingly, Costco's gross margin was largely unchanged from the year-ago quarter at 11.32%. Millerchip said a combination of mitigation efforts, such as leaning into its private label and sourcing more from U.S. and other countries with lower tariff rates, is helping the company reduce tariff impacts for its shoppers.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 11, 2025 17:35 ET (22:35 GMT)
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