Image source: Getty Images. The model at work is Costco’s strategy of offering customers products with slim markups. Even though membership fees make up about 2% of its total sales, the trailing net margin of 2.9% shows that these memberships are a significant contributor to Costco’s overall profit. Any increase, even if it is lower than expected, is likely to have a positive impact on the company’s bottom line.
In its fiscal first quarter, Costco reported earnings of $4.04 per share, surpassing analysts’ expectations of $3.80 per share. This upcoming earnings report is anticipated to be another win for Costco, unless unforeseen challenges arise in the competitive landscape for warehouse club operators. With the stock trading at 57 times this fiscal year’s net income projection and 52 times the target for fiscal 2026, Costco’s shares may seem expensive. However, the company has consistently justified its premium valuation, demonstrating resilience across various market conditions.
Throughout its over three decades of public trading, Costco has maintained positive top-line growth, except for a slight decline during the Great Recession in fiscal 2009. Despite the departure of long-time CEO Ron Vachris, who has been with the company for four decades, the leadership transition appears seamless, indicating continuity in Costco’s successful operational model.
Historically, betting against Costco based on valuation metrics alone has not been a winning strategy, as the company continues to deliver value to its members and investors alike. The upcoming earnings release on Thursday is expected to reinforce Costco’s market position and value proposition.
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*Stock Advisor returns as of March 3, 2025. Rick Munarriz holds positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale and has a disclosure policy.
