Costco's Membership Income Growth Reinforces Recurring Revenues

Core Insights - Costco Wholesale Corporation's first-quarter fiscal 2026 performance demonstrates the resilience of its membership business model, with membership income increasing by 14% to $1,329 million, driven by strong renewal rates and a recent membership fee increase [1][8] Membership Growth - Sustained membership growth is the main driver behind the increase in membership fees, with paid households rising by 5.2% to 81.4 million and total cardholders growing by 5.1% to 145.9 million [2] - Executive memberships saw a significant increase of 9.1% year-over-year, reaching 39.7 million, and now represent 74.3% of total sales [2] Customer Loyalty and Renewal Rates - The company has established strong customer loyalty, reflected in a membership renewal rate of 92.2% in the U.S. and Canada, and 89.7% globally, despite a slight decline of 10 basis points sequentially [3] - Proactive communication efforts aimed at improving retention have helped mitigate some pressure on renewal rates [3] Stability of Membership Income - Costco's membership income remains stable and recurring, supported by pricing leverage, an expanding base of paid households, and upgrades to executive memberships [4] Industry Comparisons - BJ's Wholesale Club reported a 9.8% increase in membership fee income to $126.3 million, with strong member acquisition and retention [5] - Walmart Inc. experienced a 17% growth in global membership fee income, driven by Walmart+ and Sam's Club, indicating a trend of embedding membership income into broader retail operations [6] Stock Performance and Valuation - Costco's stock has declined by 10.9% over the past year, contrasting with the industry's growth of 1.7% [7] - The forward 12-month price-to-earnings ratio for Costco stands at 42.99, higher than the industry average of 30.15, indicating a relatively high valuation [9] Financial Estimates - The Zacks Consensus Estimate for Costco's current financial-year sales implies a year-over-year growth of 7.6%, while earnings per share are expected to grow by 11.3% [10]