Costco (COST) Stock Forecast & Price Target

Costco Wholesale's financial performance indicates a robust position, highlighted by a 13 basis point expansion in retail gross margin to 11.1% in the fourth quarter of fiscal year 2025, primarily driven by gains across major product categories. Additionally, membership fee income experienced a notable increase of 14.0%, totaling $1.72 billion, which surpassed expectations and underscores the company's effective revenue generation model amid a challenging economic landscape. Furthermore, the rise in paying members to 81.0 million, coupled with an overall increase in total cardholders, reflects Costco's strong membership growth and consumer loyalty, further bolstering its positive financial outlook.

Costco Wholesale's performance has been hindered by slightly worse selling, general, and administrative expenses (SG&A), which resulted in earnings before interest and taxes (EBIT) falling below estimates at $3.34 billion, reflecting a 3.88% margin. The company's thin margins create a vulnerability to fluctuations, with marginal earnings expectations often missed as it invests in member value, compounded by a recent decline in worldwide membership renewal rates by 40 basis points to 89.8%, with a similar decline noted in the US and Canada. Moreover, risks such as a deteriorating macroeconomic environment, lower consumer confidence, and an inability to pass along rising product costs could adversely impact Costco's membership growth and overall financial stability, especially as membership fees represent approximately 70% of EBIT.