Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) reported its second-quarter fiscal 2025 results last Thursday after the closing bell, sparking fresh debate among investors about the stock's future direction. As a dominant player in the retail sector, Costco has long been known for its stability and strong customer base, even in the face of broader economic headwinds. Now that its latest earnings are out, investors are contemplating whether to increase their stake or hold tight to their current investments.

Breaking Down Costco’s Performance: A Mixed Bag of Results

Shares of Costco have declined 9% since its second-quarter earnings release. This drop can be attributed, in part, to the prevailing negative sentiment in the market driven by tariff concerns, as well as Costco’s mixed performance in the last reported quarter. While the quarterly revenues exceeded the Zacks Consensus Estimate, earnings fell short of the same. (Read: Costco Q2 Earnings Lag Estimates, E-Commerce Comp Sales Rise 21%)

The company's ability to generate strong comparable sales across regions highlights its effective pricing strategy and member loyalty. Comparable sales, excluding gasoline prices and foreign exchange impacts, rose 9.1%. In the United States, comparable sales increased by 8.6%, while Canada and Other International markets saw gains of 10.5% and 10.3%, respectively. 

Costco ended the quarter with 78.4 million paid household members, up 6.8% from the prior year. Executive memberships, a more profitable category for Costco, grew by 9.1% year over year to reach 36.9 million, now accounting for 47.1% of all paid members and driving 73.8% of worldwide sales. The company's commitment to value and quality has fostered strong loyalty among members.

How Consensus Estimates Stack Up for Costco Post Q2 Earnings

Over the past seven days, analysts have decreased their estimates for the current fiscal year by 8 cents to $17.95. However, for the next fiscal year, the Zacks Consensus Estimate has risen by a penny to $19.70. These estimates indicate expected year-over-year growth rates of 11.4% and 9.7%, respectively.
 

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Costco’s Strong Membership Base: A Key Catalyst

Costco’s resilient business model, centered around a membership-based structure, continues to be a major growth driver. The company’s high membership renewal rates, coupled with its efficient supply chain management and bulk purchasing power, ensure competitive pricing. Importantly, the renewal rate remained extremely strong at 93% in the United States and Canada and 90.5% worldwide. This robust model has allowed Costco to thrive, even during economic downturns.

Members pay an annual fee for access to Costco's warehouses, where they can purchase goods at significant discounts. This model not only ensures a steady inflow of revenues but also creates a sense of exclusivity and value among its members. Membership fee income rose 7.4% year over year to $1,193 million in the second quarter of fiscal 2025. The recent membership fee increase contributed about 3% to membership fee income in the quarter, with most benefits expected in the next four quarters and the largest impact in the final quarter of the current fiscal and the first quarter of the next fiscal.

Costco continuously adapts to market trends and consumer preferences. The company regularly updates its product offerings to include a mix of everyday essentials and unique, high-demand items. Through market analysis and tailored offerings, Costco has expanded its presence, both domestically and internationally. 

The company plans to open 28 new warehouses in fiscal 2025, of which three will be relocations. This includes 15 new U.S. stores, three in Canada and seven in other international markets, highlighting its strong domestic and global footprint. International expansion is particularly promising, as Costco continues to build its brand in high-growth markets like Mexico, Taiwan and Korea. 

Costco's digital and e-commerce initiatives continue to gain traction, contributing to overall sales growth. The company registered e-commerce comparable sales growth of 20.9% in the second quarter. Costco Logistics had a record holiday shopping season with more than 500,000 deliveries. As more consumers shift to online shopping, Costco is positioning itself to capture a greater market share.

Competitive Landscape: Can Costco Stay Ahead?

Costco's impressive sales figures are part of a larger retail picture where competition is intensifying. Rivals like Walmart (WMT Quick QuoteWMT - Free Report) and BJ’s Wholesale Club (BJ Quick QuoteBJ - Free Report) , which also cater to value-conscious consumers, are investing in expanding their e-commerce capabilities and enhancing customer experience. Amazon (AMZN Quick QuoteAMZN - Free Report) continues to dominate online shopping, pushing traditional retailers to innovate rapidly.

Moreover, margins remain a critical area to monitor, with potential concerns stemming from any deleverage in the selling, general and administrative rate. Additionally, foreign exchange volatility and potential tariffs create uncertainty. Meanwhile, consumer spending is shifting toward essentials, with discretionary seeing weaker demand.

Valuation: Is Costco Stock’s Price Justified?

Costco stock has been a standout performer, with shares rallying 26.8% over the past year, outpacing the industry's rise of 7.9%. This impressive growth underscores investor confidence in Costco’s business model.
 

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However, the stock is trading at a significant premium to its peers. Costco's forward 12-month price-to-earnings ratio stands at 49.39, higher than the industry’s ratio of 30.32 and the S&P 500's 20.63. 
 

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Investors should evaluate whether Costco's growth trajectory justifies its premium valuation while considering the associated risks, particularly in a changing macroeconomic environment. For those with a long-term investment horizon, Costco's historical performance and strategic initiatives may present a compelling case for holding the stock.

Is Costco Stock Worth Holding Post Q2?

Costco’s second-quarter performance underscores its resilient business model, strong membership growth and expanding global footprint. With aggressive store expansion and e-commerce growth, the company is well-positioned for sustained long-term gains. However, its premium valuation compared to peers, foreign exchange fluctuations and tariff risks remain potential challenges. While current investors should hold the stock, new investors should wait for a pullback before buying. Costco currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.