Costco’s Earnings Beat Estimates. Why the Stock Dipped
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Costco Wholesale Corporation (NASDAQ: COST) recently reported quarterly earnings that surpassed Wall Street’s expectations on both revenue and profit. Yet, despite the strong results, the stock saw a modest dip in after-hours trading and the following trading session. This paradox—solid earnings leading to a drop in share price—has puzzled some investors. However, a closer look reveals that market reactions are often more about future expectations than past performance.
Earnings Snapshot: Another Strong Quarter
For the fiscal third quarter ended May 12, 2025, Costco reported earnings per share (EPS) of $3.78, beating the consensus estimate of $3.70. Revenue came in at $58.5 billion, slightly above analyst expectations of $58.2 billion and up about 9% year-over-year. Comparable store sales, a key performance metric in retail, rose 6.5% globally and 5.8% in the U.S.—both exceeding estimates.
Online sales, which had lagged during parts of the previous year, also showed signs of improvement, climbing 4.7% in the quarter. Membership renewal rates remained strong, staying at over 90% in the U.S. and Canada.
The Market’s Reaction: A Classic “Sell the News” Event
Despite the positive earnings, Costco shares slipped about 2% in extended trading following the release. While this may seem counterintuitive, there are several common reasons for this kind of market behavior.
- High Expectations Already Priced In
Costco’s stock had already been on a strong run ahead of the earnings report, gaining over 25% year-to-date. Valuation was rich, trading at nearly 45 times forward earnings, reflecting the market’s optimism about its performance. When a stock is priced for perfection, even solid results can fail to excite investors. In this case, investors likely saw limited room for further upside in the short term. - Whispers vs. Consensus
While Costco beat official Wall Street estimates, there’s often a difference between “published” expectations and what traders unofficially anticipate, known as the “whisper number.” Some traders may have been expecting a larger beat or stronger growth in certain segments, such as e-commerce or international sales. When those expectations weren’t met, the reaction turned negative. - No Membership Fee Increase—Yet
Many analysts and investors were expecting Costco to announce a long-awaited increase in its annual membership fees, which haven’t changed since 2017. Management again deferred the move, saying the timing wasn’t right. While this decision may reflect caution in an inflation-sensitive economy, the delay represents a missed opportunity for revenue growth in the eyes of some investors.
Forward Guidance and Cautious Tone
One of the more subtle reasons behind the dip lies in the company’s cautious tone about the near-term outlook. Although CEO Ron Vachris highlighted the company’s continued strength in member loyalty and efficient operations, Costco didn’t offer particularly bullish forward guidance.
Executives noted ongoing challenges with inflation, foreign exchange headwinds, and pressure on discretionary consumer spending, especially on big-ticket items like electronics and furniture. With the U.S. consumer facing economic headwinds, Costco may be bracing for slower growth in the quarters ahead, even if it remains fundamentally strong.
A Temporary Pullback or Something Bigger?
While the post-earnings dip may spook some investors, most analysts view the pullback as a short-term reaction rather than the beginning of a long-term downtrend. Many believe the stock’s fundamentals remain intact and even strong.
Bank of America, for example, reiterated its “Buy” rating on the stock, noting that Costco’s unique value proposition, strong member base, and efficient inventory management give it a long runway for growth. Goldman Sachs made a similar case, citing Costco’s ability to retain customer loyalty during inflationary periods as a key differentiator from competitors like Target or Walmart.
Long-Term Outlook Remains Bright
Looking beyond the quarter, Costco remains one of the most reliable and consistent performers in the retail sector. Its business model—anchored by high member retention, minimal marketing costs, and bulk pricing—has proved resilient in various economic conditions. The company continues to expand its footprint globally, with plans to open additional stores in Asia and Europe.
The optionality around a membership fee hike also remains on the table. When it eventually happens, it could add a significant boost to earnings without substantial cost increases.
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Conclusion: Why Fundamentals Don’t Always Dictate Stock Moves
The post-earnings dip in Costco’s stock serves as a reminder that markets are not purely logical. Stocks are forward-looking instruments, and prices reflect expectations, not just past performance. In Costco’s case, a combination of sky-high valuations, unfulfilled investor hopes for a fee increase, and cautious commentary about the future created the perfect recipe for a mild pullback, despite strong earnings.
For long-term investors, however, nothing about the company’s report suggests cause for concern. If anything, a short-term dip in a high-quality stock like Costco may offer a buying opportunity. The company’s moat remains wide, its customer base loyal, and its execution strong.
In the ever-volatile world of markets, even great companies have off days. What matters most is the trajectory, and for Costco, that still points upward.
