Costco reported better-than-expected quarterly results on Thursday, driven by higher net sales, membership fee income, and gross margins. However, it wasn’t enough to break the bearish narrative on the stock, which dipped less than 1% in the after-hours market. Total revenue in the company’s fiscal 2026 first quarter increased 8% year over year to $67.31 billion, topping Wall Street expectations of $67.14 billion, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) for the period ending Nov. 23 rose 11% from the year-ago period to $4.50, beating the consensus of $4.27, LSEG data showed. COST YTD mountain Costco YTD return Bottom line The quarter looked pretty down the fairway, with beats across key line items. If there’s a bone to pick, it’s the membership renewal rate, which has declined for several consecutive quarters and is expected to continue to drift lower in the months ahead. We don’t view the dip in renewal rates as a warning sign that a Costco membership has lost its appeal. The ethos hasn’t changed: deliver the most value to customers by offering quality products at the lowest prices. That’s how the retailer consistently delivers strong comparable sales — with growth in both traffic and ticket — and market share gains. At the same time, we must acknowledge a slight slowdown in stores recently. Costco’s U.S. sales for the November period increased 5.8% excluding gas and currency fluctuations, reflecting a significant deceleration from the 6.4% growth in October. Why we own it Costco is the best-run retailer in the world, with a business model focused on offering its members a relatively small universe of products at hard-to-beat prices. Costco has succeeded for decades, but the high inflation of recent years has made the company’s value-focused ethos really shine. Competitors: BJ’s Wholesale , Walmart , fellow Club holding Amazon Last buy: June 15, 2020 Initiation date: Jan. 27, 2020 During the conference call, management was adamant that the business hasn’t lost its consistency and cautioned against reading too much into a single month’s result. “If you look at every individual month, there were only two months in that last seven months that were outside of the range of 6 to 7%,” CFO Gary Millerchip explained, adding that the company is seeing a “consistent pattern” in how members are shopping and behaving. Consistent mid-single-digit comp growth is the envy of almost every retailer. Still, a slight slowdown is viewed differently in the context of Costco’s stock, which trades at a lofty price-to-earnings multiple of about 43. Even after Walmart ‘s outperformance this year, it still trades at a P/E of about 40. Both stocks trade at a hefty premium to the S & P 500’s forward multiple of 23-24. It’s possible that the government shutdown impacted October and November, and sales could rebound in the months ahead. However, the company is trying to counter the narrative that there has been a material slowdown in…
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