Costco Shares Slide 3% as Renewal Rate Jitters Spoil Earnings Beat
Despite beating fourth-quarter revenue and profit estimates, a slight dip in global membership renewal rates has investors worried about future growth.
Costco Wholesale (COST) shares fell nearly 3% in recent trading, a surprising turn for a company that delivered a strong fourth-quarter earnings report. Investors looked past the impressive top- and bottom-line figures, instead focusing on a subtle but critical metric: a slight slowdown in the rate of membership renewals, the lifeblood of the warehouse retailer's business model.
The company , an 8% increase from the prior year, with an adjusted earnings per share of $5.87 that comfortably beat Wall Street estimates. The results were bolstered by a nearly 19% surge in e-commerce sales, signaling robust digital growth.
However, the market's attention was captured by the company's membership statistics. While Costco's U.S. and Canada renewal rate held strong at 92.3%, the . During the earnings call, management attributed this trend to a demographic shift, with a larger mix of younger, digitally-acquired members who tend to renew less frequently in their initial years.
This detail, though minor on the surface, touches upon the core of Costco's high-margin business. The company's profitability is driven not by its famously low-priced goods, but by the steady, recurring revenue from its annual membership fees. Any sign of weakness in member loyalty is therefore scrutinized heavily by Wall Street.
Despite the dip, several analysts have maintained a positive outlook, pointing to the company's overall strength and the potential upside from a recent membership fee hike. The first increase in seven years is expected to bolster operating income significantly in fiscal 2025. following the report, betting that the renewal rate issue is a temporary adjustment rather than a long-term trend. Costco's management is actively working to improve retention among its newer members through targeted digital communications and an emphasis on auto-renewal programs.
The market's reaction serves as a clear reminder that for a subscription-based model like Costco's, headline beats aren't always enough. Investors will be closely watching the renewal figures in the coming quarters to see if the company's efforts to retain its expanding, younger customer base are successful.