‘Costco’s in a funk’ but still a good name in a bad neighborhood
Costco’s monthly sales growth slowed in June; It’s a sign that even one of the retail industry’s most powerful operators is not immune from the economic realities shaking up consumers. Costco reported late Wednesday that total June sales rose 10.6% year over year to $29.4 billion, coming in slightly below expectations. Looking at U.S. benchmarks for June, sales excluding gasoline rose 7.6%, down from an 8.7% increase in May and slightly below Mizuho analysts’ expectations of 8% to 9%. All categories slowed down slightly last month. Shares of the members-only retailer fell more than 4% on Thursday. Although the stock is up about 5.5% year-to-date, that performance has lagged the S&P 500’s gain of about 10%. Speaking on CNBC on Thursday, Jim Cramer said, “Costco is in trouble,” stating that the company is doing business in a difficult economic environment. Still, portfolio manager Jeff Marks signaled the importance of diversification. “They’re doing well, but was it as good as May? No, that’s why the stock is down,” Jeff said during Thursday’s Morning Meeting for club members. “This is a very defensive player who can still create strong compositions whether the economy is good or bad,” he added. Jim said he would be interested in buying Costco shares if they fell below $900 per share. The stock was trading around $913 in afternoon trading. Simply put, Jim thinks Costco is a good name in a bad neighborhood, pointing to modest gains in retail overall. The popular S&P Retail ETF (XRT) is up just 1.7% year to date. That underperformance was reflected in KeyBanc Capital Markets’ latest consumer survey, conducted late last month and released Monday. KeyBanc found spending intentions and financial confidence weakened in the March-June quarter as consumers remained concerned about high food costs, their personal income and rising gas prices. These concerns align with the latest consumer sentiment surveys and Costco’s June traffic and ticket trends. Domestic traffic increased by 3.2% in June, slowing down by approximately 50 basis points compared to the previous month. Excluding gasoline, foreign exchange and inflation, the average ticket increase decreased to 3.7% from 4% in May. It wasn’t that bad. Costco’s ancillary businesses, including gasoline and pharmacy, were its strength last month. Digital sales likewise rose 21.5%, with e-commerce accelerating slightly from 20.9% in May, likely benefiting from Costco’s online Membership Appreciation Days event held June 22 through June 26. COST YTD mountain Costco YTD While it’s too early to worry about Costco’s modest growth in June comps over the long term, it reinforces for investors that the stock’s premium valuation leaves little room for disappointment. Costco shares are trading at 41 times forward earnings, according to FactSet. That’s more than Walmart’s 36.5 times and twice the S&P 500’s price-to-earnings ratio of about 20.5. “Very few retailers can generate a relatively disappointing +7.6% profit in any given month – including very healthy levels of worldwide traffic – but the high valuation of COST transactions sets a high bar,” Mizuho said in a research note following the announcement. Analysts said the monthly report was “good” but “not as strong as it could be.” Wells Fargo struck a similar tone, saying Costco’s results fell short of high expectations without changing the retailer’s competitive position. Another important metric that investors will continue to monitor is slowing membership growth. Membership numbers are only published quarterly. Costco delivered enough results in its fiscal 2026 Q3 earnings report released in late May. The number of paid members remained underwhelming at 82.9 million, but was up 4.1% year over year. The worldwide membership renewal rate remained stable at 89.7%. Costco will release its July sales on August 5. The company’s earnings report for the last quarter of fiscal 2026 will be published on September 24. (Jim Cramer’s Charitable Trust is a long COST. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
