Costco Wholesale reported better-than-expected fourth-quarter results on Thursday night, but the numbers were not strong enough to silence the debate around membership trends and the retailer’s growth outlook. Total revenue in the August quarter increased 11.1% year over year to $95.72 billion, ahead of Wall Street expectations of $94.86 billion, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) in the 16-week period rose 15% to $6.75, ahead of expectations, LSEG data showed. The EPS figure still beat consensus when stripping out a 15-cent benefit resulting from tariff refunds, thanks to the Supreme Court ruling in February that President Donald Trump’s emergency levies were unconstitutional. Membership fee income in the quarter grew 7.3% to $1.85 billion, slightly below the FactSet estimates of $1.86 billion. Both worldwide and U.S./Canada membership renewal rates ticked higher compared with the prior quarter. The stock is little changed in extended trading Thursday, up less than a quarter of a percent. Shares finished Thursday’s regular session at $896.48, down 18% from their May 19 closing high. Rival Walmart is down almost 20% in that same stretch. One of the primary question marks around Costco in recent quarters has been slowing membership growth rates and wobbly renewal trends. We’ve been concerned about this too, especially considering the stock’s premium valuation leaves little room for error. Despite the sequential improvement in membership renewal rates, Wall Street will need to see a few more solid results on this front before deciding Costco is out of the woods. That said, we saw enough that we’re comfortable sticking with the name down here, especially against the backdrop of ongoing affordability headwinds, which should keep Costco members wanting to shop at a store known for its value. We therefore reiterate our hold-equivalent 2 rating, but lower our price target to $1,050 from $1,100. The multiple that investors are willing to pay for Costco’s earnings has compressed, and we need to see some follow-through before getting more positive on the stock. COST YTD mountain Costco’s year-to-date stock performance. Bottom line This was not a squeaky clean quarter, but there were several notable positives. Chief among them: an improvement in membership renewal rates and growth in the higher-tier executive membership base; executive members typically renew at a higher rate than basic “Gold Star” members. We’re also pleased to see that Costco memberships are resonating with younger shoppers because capturing customers young is a key factor in driving loyalty and, in turn, higher lifetime customer value. At the same time, younger members are more likely to sign up for their membership online, and online sign-ups tend to churn at a higher rate than those who sign up in the store. This means that Costco’s resonance with younger shoppers is key to the broader debate around membership. On the other hand, paid members…
Read More: Costco makes progress on a key membership metric. Here’s our new price