No Matter How You Slice It, Costco Continues to Win With Consumers

Thursday night, Costco  (COST)  delivered quarterly revenue and sales that beat Wall Street expectations, with revenue and EPS coming in at $86.16 billion and $5.87, respectively. Total adjusted comp sales, which exclude the impact of gas and foreign exchange, rose 6.4% which was ahead of the market forecast for 6.21%. 

What’s weighing on the shares, however, is the ever-so-slight miss on U.S. comps sales, which rose 6.0% for the August 2025 quarter, a hair shy of the 6.05% the market was looking for. We’ve seen overreactions like this before, and they tend to result in nice levels to pick up shares when things settle down.

While some may focus on that ever-so-slight miss, we would focus more on the accelerated growth rate in membership fees, which rose 14%, year over year, to $1.7 billion in the quarter. That reflects the company’s ability to win new paid memberships, up 6.3%, year over year, to 81 million, and the accelerating impact of last year’s membership fee price increase. 

Remember, that price increase went into effect on September 1, 2024, and was expected to have a staged impact on membership fees over the ensuing quarters. We are seeing that impact play out, as well as the number of higher-priced executive memberships accounting for a larger percentage of overall paid memberships.

What the Headline Metrics Don't Show

We’d point out a few things that the headline metrics don’t really show. First, if we look at the number of paid memberships to warehouse locations over the last several quarters, we see that the ratio is moving higher. Second, analyzing total sales to the number of paid memberships also shows an acceleration over the last few quarters. These two items tell us that as Costco continues to expand its footprint. It is not only winning new members, but in the current environment, those members are spending more at Costco.

Costco also looks to accelerate that footprint expansion by adding 30 net new locations over the coming 12 months, a tad faster than the 24 it added over the last year. Baked in that forecast is a pickup in the number of new U.S. locations to 20 compared to the 15 added over the last year. We see that effort continuing to drive membership higher, which will grow the membership fee revenue stream and increase Costco’s operating income along the way.

We’ve discussed this many times in the past, but given the current environment, it bears repeating: Costco’s membership business model is a key differentiator between it and other retailers, very much the way that model differentiates American Express  (AXP)  from other credit-card companies. The recurring nature of that business model, the step function higher in the membership fee revenue stream as more warehouses are added, and sky-high renewal rates will see us remain COST shareholders.

Despite the market’s reaction to Costco’s earnings report, for us, the company’s story remains on track. Moreover, in the current environment that has consumers stretching their disposable spending dollars, especially given higher grocery costs, we continue to see Costco benefiting. That should only accelerate as we move into the holiday season, and we’ll look for confirmation in Costco’s monthly revenue and comp sales reports over the coming months. As the company continues to win with consumers, odds are Wall Street, and the investor community will eventually catch up.

For now, we will maintain our $1,200 price target on COST and our One rating, but based on those incoming reports, we may opt to adjust that target. In our view, there is little question that the pullback we’ve seen in COST shares since their June high near $1,055 is a nice place to pick up shares heading into what tends to be the biggest quarter of the year for the company. 

At the time of publication, TheStreet Pro Portfolio was long COST and AXP.