Costco continues to post strong sales gains, but one metric has been losing momentum and drawing closer scrutiny from investors. Heading into Thursday evening’s fiscal third-quarter results, shareholders, including the Club, hope to see signs of improvement in the pace of new member additions and renewals, following declines since late 2025. The big box retailer’s high-margin fees remain a cornerstone of its business. Total paid membership has historically grown in the mid- to high-single-digit range (6% to 7%), but fell below 5% over the past year. By the end of the second quarter of fiscal 2026, which ended in February, growth in overall paid members slowed to 4.8%. Part of that slowdown was the result of a 30-basis-point slide in renewal rates in the third quarter of its fiscal 2025, which ended in May of last year. They fell another 40 basis points in the following quarter. In each of the first two quarters of fiscal 2026, the declines moderated to 10 basis points apiece and appeared to stabilize. By the end of the latest second quarter, the core U.S. membership renewal rate was 92%, while the global renewal rate was just under 90%. While seemingly slight, these drop-offs matter. Same-store sales and store traffic are strong indicators, but it’s the recurring membership fee income that underpins our investment thesis in the company. It is also why Costco trades at a premium relative to its retail peers. Shares currently trade at 50 times projected 2026 earnings, roughly double the typical valuation for staples stocks, according to JPMorgan. Its closest competitor, Walmart , trades at 40 times. Dips in membership growth threaten that best-in-class valuation — something Jim Cramer alluded to on Thursday’s Morning Meeting when previewing the quarter. “I’m looking for a decent number,” Jim said, before cautioning against taking action on Thursday. “No need to buy it ahead [of the quarter]. That would be a mistake. It’s had a big move.” Management has partly attributed the membership slowdown to tougher comparisons from a year earlier, but there’s more to the story. The biggest factor is a shift toward digitally acquired members, particularly younger consumers, who behave differently than traditional in-warehouse Costco shoppers. Specifically, online members are “more fickle,” meaning they don’t renew at the same rate, according to Christopher Nardone, analyst at Bank of America, who qualified just how apparent that shift has been. “Back in 2019, about 5% of new members were under 40 [years old] and signed up digitally. Today, it’s almost half.” Nardone said in an interview with CNBC. While the additional online sign ups are helping increase the membership fee income and overall membership base, younger digital members, who are growing very quickly and may not be on top of renewing their membership, are becoming a larger part of the overall renewal calculation and “it does bring down the average,” Costco CFO Gary Millerchip said during…
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