Members-only warehouse giant Costco (NASDAQ:COST) has been a juggernaut of a stock for decades. The Washington-based company is loved by investors for its defensive business model, steady international growth and dependable dividends.
Results for the five weeks ended 5 July 2026 showed an impressive 10.6% jump in net sales to $29.24 million. Which begs the question, why did Costco shares weaken in after-hours Wall Street dealings on 8 July?
Growth slows
Well, Costco racked up comparable sales growth of 8.8%. Unfortunately, this marked a slowdown on the 12.5% comparable growth recorded in the four week period ended 31 May.
Admittedly, the latter period contained one less trading week. Nevertheless, the growth slowdown spooked investors and triggered a sell-off in the stock.
This sales deceleration raised concerns that elevated gas prices are crimping consumer spending, and that Cosco’s growth could slow in the year ahead.
Patchy performance
Costo’s performance in the five weeks to 5 July was varied by region. The US posted the strongest comparable sales growth at 10.6%, albeit a deceleration from the 13.7% growth notched up in the four weeks to 31 May.
Comparable sales growth slowed from 9.2% to 3.7% in Canada, while other international markets growth decelerated from 9.7% to 4.7%. Encouragingly, Costco’s digital sales maintained their momentum, growing by more than 20% in the five weeks to 5 July.
Why Costco has a big fan club
Costco is a specialist operator of membership-only warehouse club retail stores around the world. Just under a third of American consumers regularly shop at Costco warehouses.
By offering members low prices on a limited selection of nationally-branded and private-label products in a wide range of categories, it generates high sales volumes and turns stock over at a quick-fire rate.
While gross margins are low, Costco operates super-efficient, no-frills, self-service warehouse facilities. And this enables the company to operate profitably, churn out higher dividends and occasionally pay out large special dividends.
Costco has a well-earned reputation as a durable long-term compounder. It is one of the most resilient and defensive businesses in the global consumer sector with a compelling overseas expansion angle.
Sustainable competitive advantages include a loyal membership base and a strong private-label offering. But the stock is priced for perfection, trading on a prospective price-to-earnings ratio north of 45 times.
That rating leaves no room for growth-related disappointments, as demonstrated by the after-hours sell-off across the pond.
We admire the Costco model, but the valuation is rich for a big-box retailer. Investors concerned that Costco’s sales progress could slow should scout out other retail names at earlier stages of their growth trajectories.
Read the press release here: https://investor.costco.com/news/default.aspx
