ii view: Costco paid membership growth slows again

Third-quarter results to 10 May  

• Total revenues up 11.6% to $70.5 billion
• Adjusted comparable sales up 6.6% year over year
• Adjusted earnings up 15.2% to $4.93 per share

ii round-up:

Membership retailer Costco Wholesale Corp reported sales that beat Wall Street forecasts, aided by motorists searching for competitive fuel prices in the wake of the Middle East war.

Total third-quarter revenues to mid-May rose 11.6% to $70.5 billion, pushing growth in adjusted earnings of 15.2% to $4.93 per share. Analysts had expected outcomes of $69.8 billion and $4.93 per share respectively.

Shares in the S&P 500 retailer are down 4% today having come into these latest figures up 15% so far in 2026. The S&P 500 index is up around 10% year-to-date. Rival Walmart Inc is up 7%.

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Costco operates 931 warehouses globally including 639 in the USA, 115 in Canada, 43 in Mexico, 29 in the UK and seven in China.

Costco remains in a legal dispute with the US government regarding trade tariffs. The retailer previously pledged to lower shelf prices if it receives tariff refunds following a previous US Court decision in its favour.

Membership revenues during the quarter climbed 10.7% from a year ago to $1.37 billion, including some new memberships purely to take advantage of competitive fuel prices.

Digital sales improved 21.5%, aided by categories including pharmacy, gold and jewellery and home furnishings.

Costco continues to plan for a further nine outlets this financial year-end, potentially bringing its total store portfolio to around 940 stores.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, with a target price of $1,130. It believes Costco's "structural advantages in supply chain efficiency, value positioning and scale...will continue to underpin market share gains and long-term earnings growth." 

ii view:

Opening its first warehouse in Seattle in 1983, the big box retailer today employs more than 330,000 people globally. Costco serves almost one-third of the US population. Headquartered in Issaquah, Washington on the West coast, the group’s former HQ in Kirkland remains the name of its own-brand label. Geographically, the US remains its biggest sales generator at 72% sales during its last financial year. The balance of sales was split almost equally between Canada and other international regions.

For investors, trade tariffs applied on goods imported from overseas such as toys have pressured shelf prices. Paid membership growth has slowed, growing at 4.1% this latest quarter from 4.7% in Q2 and 7% in the prior financial year. A forecast price/earnings (PE) ratio above the 10-year average may suggest the shares are not obviously cheap, while ongoing trade talks between the US and China could yet impact business.

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More favourably, diversity of revenue streams includes both membership fees and product sales, with the group’s geographical footprint also extensive. A US court ruling overturning Trump tariffs could see Costco reclaiming tariffs paid to reinvest in shelf prices. Store numbers are still growing, while initiatives to grow digital related sales such as personalised product recommendations and improved search capabilities continue to assist.

A further slowdown in paid membership growth is bad news, and Costco will need to reverse this quickly. However, there is still enough going for this well-managed value-focused retailer for it to remain worthy of a place in many diversified investor portfolios.

Positives:

• Product diversity
• Value orientated

Negatives:

• Intense competition
• Subject to currency moves

The average rating of stock market analysts:

Buy