MW Analyst takes 'contrarian stance' on Costco's stock and says it's time to sell
By Bill Peters
Slower membership trends, competition from Walmart and caution around starting a family all present risks to the big-box retailer, a Roth analyst says
Costco shares are down 6.6% so far this year.
Costco Wholesale Corp. has been one of the few retail-industry standouts over the past few years. But one analyst on Monday handed the warehouse retailer a rare downgrade - to sell - citing weaker membership trends, steeper competition and greater caution around starting a family.
That analyst, Roth Capital's Bill Kirk, also cut his price target on the retailer - known for its Kirkland Signature brand and an emphasis on bulk selling - to $769 from $906. Shares of Costco $(COST)$ were down 3.5% on Monday.
"A contrarian stance: Costco risk skews heavily to the downside," he said.
Most analysts still like Costco's stock and have argued that the retailer's size allows it to keep prices lower as consumers juggle higher costs of living. Of the analysts tracked by FactSet, two have a sell rating on the stock, while 21 have a buy rating or the equivalent. Twelve have a hold rating.
Kirk issued the downgrade after Costco's quarterly results on Thursday topped analysts' expectations but didn't appear to impress many investors. That downgrade also followed some concerns on Wall Street of slowing sales growth at the chain, which, like big-box giant Walmart Inc., has drawn more shoppers over the past few years.
Kirk said renewal rates at Costco fell again in its first quarter, and he noted a slowdown in growth of paid memberships. In Costco's first quarter, he said, paid members increased by 400,000 quarter over quarter, compared with similar gains of more than 1 million per quarter over the past few years. Gains in same-store traffic, he said, were also cooling.
During Costco's earnings call, executives said the decline in renewal rates was due to a greater prevalence of new members signing up online. Customers who sign up online, Costco said, renew at a slightly lower rate.
"Our goal is to continue to improve renewal rates by improving engagement with members who signed up digitally, although for the reasons previously shared we may still see a slight decline in the overall renewal rate over the next few quarters," Chief Financial Officer Gary Millerchip said on the call.
Elsewhere, Kirk said, Walmart $(WMT)$ was focusing more on its Sam's Club stores, opening more of them recently. Sam's Club, he said, had $1.2 billion in capital expenses in fiscal 2025, up from $1 billion in the prior year and $700 million the year before that. BJ's Wholesale Club $(BJ)$ was also opening more stores.
Kirk also pointed to a broader trend of smaller households and delayed household formation in the U.S. This year, the average household had 2.5 people, a bit lower than last year and down from more than three people in the 1970s, he said, citing Census Bureau data. He also noted that the percentage of people ages 25 to 34 who live on their own, are in the labor force and have children stood at 8% last year, compared with 22% in 1975.
"Given the bulk assortment at warehouse clubs like Costco, we believe there is a small, persistent headwind that was masked during COVID-related disruptions [and] benefits," he said of the trends around household formation.
Costco shares are down 6.9% so far this year, after a big multiyear run higher. Still, after the chain's earnings last week, other Wall Street analysts offered praise for the company.
William Blair analyst Phillip Blee said in a note last week that he expected more rangebound movement from Costco's stock over the next few months, partly due to tougher comparisons. But he said the stock remained a good way to play defense.
"We believe Costco remains a safe place to hide for many investors looking for consistency and operational excellence against an uncertain consumer backdrop and concerns about potential tariff disruptions, namely an uptick in inflation, as Costco's value proposition and specialized team of merchants position the company well to navigate a volatile trade environment," he said.
-Bill Peters
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December 15, 2025 14:08 ET (19:08 GMT)
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