Is Costco Stock a Buy, Hold or Sell After Its Q1 Earnings Report?

Core Insights - Costco Wholesale Corporation (COST) reported its first-quarter fiscal 2026 results, highlighting stable growth and a loyal membership base, which has historically allowed it to navigate economic challenges better than competitors [1] Financial Performance - Shares of Costco fell 2.7% post-earnings release due to a top-line miss, despite year-over-year improvements in revenues and earnings driven by membership growth, resilient traffic, e-commerce gains, and margin expansion [2] - Comparable sales, excluding gasoline prices and foreign exchange impacts, rose 6.4%, with U.S. comparable sales increasing by 5.9%, and Canada and Other International markets seeing gains of 9% and 6.8%, respectively [2] - Membership fee income grew 14% year over year to $1,329 million, benefiting from strong renewal rates and a recent membership fee increase [7] Membership Growth - Costco ended the quarter with 81.4 million paid members, a 5.2% increase from the previous year, with executive memberships rising 9.1% to 39.7 million, accounting for 74.3% of worldwide sales [3] - The renewal rate remained strong at 92.2% in the U.S. and Canada, and 89.7% worldwide, reflecting member loyalty [5] Digital and Operational Expansion - Digitally enabled sales surged 20.5%, supported by a 24% increase in website traffic and a 48% rise in app engagement [9] - Management highlighted improvements in checkout productivity and AI-driven inventory systems, which enhanced in-stock levels to over 98% [9] - Costco plans to sustain over 30 net warehouse openings annually, balancing growth between U.S. and international markets [8] Market Position and Competitive Landscape - Costco's sales figures are part of a competitive retail environment, with rivals like Ross Stores, Dollar General, and Target enhancing their offerings and supply-chain efficiencies [11] - Costco's stock is trading at a premium with a forward 12-month price-to-earnings ratio of 41.81, higher than the industry average of 30.15 and the S&P 500's 23.35 [14] Investment Outlook - Despite Costco's strong brand and membership base, its recent stock underperformance relative to the industry suggests caution, as high valuations may lead to pullbacks with minor setbacks [15] - For existing investors, holding the stock is advisable due to its long-term strength, while potential investors may consider waiting for a more attractive entry point [16]