Warehouse club Costco (COST) reported earning on Friday that missed analyst expectations and sent its stock spiraling lower. It crashed through the $1,000 per share threshold that it had only recently attained and now COST stock sits 10% below its all-time high.
As inflation and tariffs weighed on Costco’s results, a situation that isn’t likely to quickly improve, can investors expect the warehouse club to stage a comeback and break through the psychologically significant $1,000 price point?
With consumers remaining cautious as rising prices hurt wallets, Costco reported mixed results, beating Wall Street topline expectations, but coming up short on the bottom line.
The wholesale warehouse club still enjoyed strong return visits as comparable store sales rose 6.8% on a 5.7% increase in foot traffic. Adjusted e-commerce comps, however, soared 22% year-over-year.
Investors had a hint that comps would be robust as geolocation intelligence data specialist Placer.ai reported in February that same store visits were up 7.2% in 2024 and were 7.7% higher in January. The analytics firm using anonymous cellphone tracking data to see where consumers are shopping.
CFO Gary Millerchip told analysts on the earnings conference call that although consumers remain “very choiceful” in the uncertain market environment, they are still willing to spend. Yet he admits that the “return of inflation and the potential impact of tariffs" will continue to play out in the months ahead.
President Trump is attempting to use tariffs as a negotiating tool with foreign trading partners to level the playing field. He has said that whatever they charge U.S. companies to sell goods in their countries he will impose matching duties on imports.
Tariffs against Mexico and Canada will be as high as 25%, but they have been temporarily postponed until April. Duties on the European Union and China, where Costco receives a majority of its goods from, according to the Observatory of Economic Complexity, have also been imposed. Costco is the world’s 12th largest importer.
It suggests the operating headwinds the warehouse club faced in the fourth quarter will persist into the foreseeable future, which will serve as a drag on Costco’s performance.
COST stock isn’t cheap, though, even after the pullback in price. Shares go for 56 times earnings, 48 times next year’s estimates, and 5 times Wall Street’s 15% long-term earnings growth rate. It suggests the retailer may continue to lag.
Yet because Costco remains an excellent dividend growth stock, investors with a long-term investment horizon may still want to buy shares. Over the past five- and 10-year time frames, the retailer has raised its dividend at a 13% compound annual growth rate. With just an 19% free cash flow payout ratio, the dividend is both secure and has room for future growth.
So although the payout yields just 0.5%, you’re getting excellent returns over time. Moreover, Costco often pays its shareholders a large special dividend. In 2023, it gave investors a one-time $15 per share payout. In three of the last eight years, the retailer has rewarded shareholders with an extra payout.
Until the trade situation sorts itself, though, COST stock may find the $1,000 per share threshold a ceiling.
