Why Costco Stocks Pulled Back Today

Actions of Costco Wholesale (COST -2.13%) were down on Friday after its fourth-quarter fiscal revenue came in slightly below estimates.

Prior to Thursday afternoon’s report, the warehouse retailer was trading at a high valuation, so a reversal of the slight loss was not a surprise.

As of 10:51 a.m. ET Friday, shares were down 1.5% after falling as much as 3% earlier in the session.

Image source: Costco.

Costco is solid but trades at a premium valuation

During the period, which ended Sept. 1, Costco continued to produce steady growth. Comparable sales rose 6.9% excluding the impact of gas prices and changes in foreign exchange rates.

Revenue rose just 1% to $79.7 billion, but it’s important to note that this year’s fiscal fourth quarter lasted 16 weeks, while 2023’s was 17 weeks. The top result was below analysts’ consensus estimate of $79.97 billion.

Even with near-constant revenue growth, Costco managed to increase its gross margin from 11.9% to 12.4%. Operating income rose 9.4% to $3.04 billion, and earnings per share rose from $4.86 to $5.29, beating the consensus estimate of $5.08.

On the earnings call, management said recent improvements, such as the addition of membership card scanners to speed up the checkout process, are starting to pay off.

What’s next

Costco is one of the most reliable and consistent retailers in the industry, and its business model has stood the test of time. However, its stock is as expensive as ever, trading at a price-to-earnings ratio of 53.

While the business continues to look solid, investors should temper their expectations for further share price growth as the current valuation implies high expectations.