Core Insights - Costco has a strong track record of exceeding earnings expectations and has consistently performed well in the stock market [1][13] - The company operates 914 warehouses globally, with over 600 located in the U.S., and has a significant presence in various countries [3] - Costco's business model relies heavily on customer memberships, which provide high-margin revenue and contribute significantly to its profits [4][5] Membership and Revenue - Membership fees are a major source of income, with the company reporting over $5 billion in membership revenue in the latest fiscal year [5] - Costco maintains a high membership renewal rate exceeding 90% in the U.S. and Canada, indicating strong customer loyalty [6] - The company's ability to offer low prices is supported by bulk purchasing, which enhances its competitive advantage [6][10] Market Position and Future Outlook - Costco is well-positioned to navigate challenges such as import tariffs due to its extensive supplier network and strong private label brand, Kirkland Signature [9] - The company's pricing strategy is advantageous during economic downturns, potentially driving revenue growth while competitors struggle [10] - Analysts have historically underestimated Costco's performance, with predictions suggesting the stock could reach $3,190 per share by 2035, representing a 248% increase from current levels [13][14] Stock Performance - Costco's stock has appreciated over 500% in the past decade, reflecting its strong earnings growth and market confidence [14] - The stock currently trades at 45 times forward earnings estimates, a premium justified by its business model and loyal customer base [11][12]

Core Viewpoint - Costco's stock performance has lagged behind the market despite strong fourth-quarter results, leading to a mixed reception from investors [1][2]. Group 1: Company Performance - Costco reported an 8% year-over-year sales increase in the fiscal fourth quarter, reaching $84.4 billion, with comparable sales up 5.7% and e-commerce sales up 13.6% [5]. - Earnings per share (EPS) rose to $5.87 from $5.29 last year, surpassing analyst expectations [5]. - The company has successfully navigated tariff changes, with about one-third of its merchandise sourced from abroad, and has expanded its Kirkland Signature line to mitigate impacts [6]. Group 2: Growth Opportunities - Costco is the third-largest retailer in the U.S. but operates fewer than 1,000 stores globally, indicating significant growth potential [7]. - Currently, Costco has 914 stores, with plans to accelerate openings to 35 in 2026, which is expected to enhance sales further [8]. - The company is also focusing on attracting new members and offering new products to ensure sustained growth [9]. Group 3: Target Demographics - Costco is successfully attracting younger members, with nearly half of new signups under age 40, which is crucial for future growth [10]. - The company is investing in digital channels, resulting in a 27% increase in site traffic in the fourth quarter, and has tailored its homepage experience to enhance consumer engagement [11]. Group 4: Market Sentiment - Despite Costco's strong fundamentals, Wall Street remains cautious, with an average target price 15% higher than the current price, reflecting concerns over the economic environment and slowing comparable sales growth [13]. - The stock is currently trading at a high P/E ratio of 53, indicating that it is priced for perfection and may be vulnerable to market fluctuations [15].

Group 1: Inflation Impact on Retail - Inflation has been a significant issue for consumers in recent years, with rates hitting 2.7% as of June [3][5] - Historical data shows that the S&P 500 performs best when inflation is between 2% and 3%, with higher inflation potentially leading to increased interest rates that can negatively impact stock valuations [2] - Costco Wholesale, a leading big-box retailer, has seen its stock return over 200% in the past five years, outperforming the broader market [3][6] Group 2: Costco's Business Model - Costco operates on razor-thin margins, primarily generating profits from membership fees rather than product sales [4] - As one of the largest retailers, Costco can source goods at lower costs, allowing it to maintain competitive pricing even during inflationary periods [5] - The company attracts consumers looking for deals, but excessive inflation could still negatively affect sales, particularly of discretionary items [5][6] Group 3: Financial Performance and Valuation - Costco's sales for July 2025 reached $20.89 billion, reflecting an 8.5% increase from the previous year [6] - The company's price-to-earnings (P/E) ratio has increased from about 40 five years ago to 55 today, indicating a significant rise in valuation [8] - Analysts project Costco's earnings will grow at an annualized rate of 9% over the next three to five years, resulting in a PEG ratio of approximately 6.0, suggesting the stock may be overvalued relative to its growth potential [10] Group 4: Future Outlook - The stock's current valuation may lead to a reversion towards long-term norms, especially if inflation continues to rise and discretionary spending is squeezed [12] - Despite concerns about short-term prospects, Costco is expected to remain a strong business in the long term [13]