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Costco (NASDAQ: COST), the world’s largest warehouse club retailer, is often considered an evergreen investment. Yet over the past 12 months, its stock dipped 3% as the S&P 500 rose 16%. Let’s see why it underperformed the market, and if it can bounce back over the next year.
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Costco can afford to sell its products at low margins because it generates most of its profits from its higher-margin membership fees. Its scale enables it to negotiate lower wholesale prices with its suppliers, and it’s also selling more of its higher-margin Kirkland private-label products.
So long as Costco grows comparable-store sales, opens more warehouses, adds new cardholders, and maintains high renewal rates, its core business will stay healthy. But over the past year, its global renewal rates slipped — even as its other growth metrics improved.
|
Metric |
Q1 2025 |
Q2 2025 |
Q3 2025 |
Q4 2025 |
Q1 2026 |
|---|---|---|---|---|---|
|
Comparable Sales* Growth (YOY) |
7.1% |
9.1% |
8% |
5.7% |
6.4% |
|
Total Warehouses |
897 |
897 |
905 |
914 |
923 |
|
Total Cardholders (Millions) |
138.8 |
140.6 |
142.8 |
145.2 |
145.9 |
|
Global Renewal Rate |
90.4% |
90.5% |
90.2% |
89.8% |
89.7% |
Data source: Costco. *Excluding fuel sales and foreign exchange. (Fiscal year ends in August).
Costco attributed that decline to lower renewal rates among its “digitally signed” members, who enrolled online instead of at a warehouse. These shoppers are generally younger and more likely to cancel their memberships if they don’t squeeze enough value from them.
Costco’s management believes its digitally signed members have lower engagement with the brand than its physically signed members because they don’t fully appreciate its ancillary services, special events, and other benefits. To address those challenges, Costco plans to ramp up targeted digital communications (emails and app notifications), promote auto-renewal features, and launch additional perks to demonstrate the value of its memberships.
From fiscal 2025 to fiscal 2028, analysts expect Costco’s net sales and EPS to grow at CAGRs of 8% and 11%, respectively. Even if its renewal rates dip slightly, it can likely offset that pressure by opening more warehouses, gaining more members, and raising its fees.
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