Key Points:
- Since last July ‘25, COST has lagged the S&P by nearly 30% because it’s not levered to the AI-Mojo and concerns around long-term growth. The concern centers principally around total membership growth and engagement; total membership growth has progressively slowed since the August ’25 quarter.
- But total memberships isn’t the most relevant metric as Executive Members generate 75% of sales, despite being only 50% of memberships. Executive Membership growth has been stable.
- Other measures of engagement like visitor (household) growth, mid-week visits growth, dwell time, etc. are all favorable per Advan’s observed data.
- Then there is the concern that Costco isn’t winning younger consumers (i.e. new households), but Advan’s data on visitor demographics and income also support management’s assertions that they are winning younger generations as members. Advan shows that the visitor age has ticked lower, as has average income.
- In time, we expect that perceptions will correct and concerns will ease when the relevant metrics and data are more fully appreciated.
Over the past year, investors have grown concerned about Costco’s competitive moat and long-term growth after membership growth began to slow, as shown in the chart below. That concern has pushed Costco’s P/E (NTM) multiple from 50X to 40X. And so, while EPS grew 13% over the past year, the stock has fallen and vastly underperformed the S&P 500, which is up 25% since July ’25 and leaving COST behind by 30%. (We get that the S&P is levered to AI-mojo; whereas COST isn’t directly linked. It is indirectly linked via the wealth-effect.)
We understand the concern, but total memberships isn’t the most relevant metric as Executive Members generate 75% of sales, despite being only 50% of membership. As shown, the growth rate in Executive Members remains undiminished. For the fiscal year (ended Aug 23rd), on an absolute basis, Costco gained (net) 3.6M new Executive Member, more than the prior year’s +3.3M. On a per-club average basis, Executive Membership rose +6.4%, in line with prior year’s +6.5%. And so, that consistent Executive Membership growth largely explains why comp sales growth (US, ex-gas) has again performed strongly (+6.6% this FY vs +7.3% LY).
Another way of judging engagement is the cadence of daily visits, dwell time, basket size, and unique visitor growth. In the following chart, over the past five months, Costco produced solid visit growth on Tuesday and Wednesday, and above Sunday’s growth. Costco has historically been viewed as a weekend stock-up trip. As shown, it’s also growing the mid-week fill-in trip, demonstrating that it’s gaining new consumption occasions and increasing engagement. (No doubt, the jump in gas prices is also contributing to that mid-week appeal.) The dwell time (or average time in the store treasure hunting) increased a solid +2.3% YoY for the Apr-Aug period. During the period, comp-ticket (US, ex gas) increased +4.1%, well ahead of like-for-like inflation / pricing and that reflects more items in the basket (UPT) and strong treasure hunting (i.e. merchandising) success, and again demonstrating greater engagement.
The next chart shows unique visitors (not visits) to Costco (including the gas station), and the lift in March and July (when gas prices spiked) are notable. Since March, Costco’s gas pump traffic and transaction growth have increased at a high-teens rate (on a per-location average basis). Lastly, July began the lap of last year’s extended hours program; visitor growth accelerated in July and August of this year, again demonstrating increased retention and engagement.
On what management is seeing on gas prices, the engagement and Executive topics, CFO Gary Millerchip said:
We tend to see higher spend by Executive Members. And similarly, as members engage in -- more in gas, we tend to find they visit more frequently. We didn't necessarily see that in the very early days of the spike in gas prices in the market because I think members were generally filling up short-term to fill in more frequently rather than visiting at the same time to the warehouse. But we do believe that as members see the value of gas that we're offering and we've got more new members buying gas for the first time that we think that's a great indicator of continued spend and growth with members as well. So I think it's a combination of all of those that we would expect to be positive for us in terms of driving that incremental spend per member.
Advan’s data (with the help of our Claude.ai MCP) also shows that nearly all of its top-10 markets have performed strongly over the past year, with only New York lagging. (We don’t know why NY is lagging.)
On the earnings call, Management was hit with questions about winning over younger customers in the “hidden context” of Costco having too high of a mix of older members that are moving into a lower spending part of life (Costco is capturing these folks’ travel budgets). However to the contrary, Advan data shows that from Q2’23 to Q2’26, the average age of the observed visitor moved a tad lower, as did median household income, affirming management’s claim that Costco is attracting younger generations. Per the following table, those that are just out of college and living in cities -- “Young Professionals” have grown by 13% over the past three years (vs. the average of +10% on a per-store basis). As this cohort ages, they become “Educated Urbanites.” This cohort increased by 14% since 2023. Thus, the data dispels concern that Costco isn’t winning younger consumers and households.
On the topic, CEO Ron Vacas said, “Growth in new member sign-ups through digital channels and younger members also continued. Looking over a longer time horizon, our member base under 40 has grown nearly 60% since COVID, increasing our total penetration of members under 40 to more than 1/4 of our total base. While these younger members start out spending a little less with us, over time, they grow into higher spending members.” Millerchip added, “We tend to find is that younger members, generally speaking, as you might imagine, are a smaller household. And generally, the income levels are a little bit lower than when they sort of, for us, would sort of reach their peak maturity and guessing having the most need for what we offer at Costco. So really, as they go through that sort of pre-40 through 40 to 55 or so is when we see our members hit that peak spending pattern because their income is generally at its peak and they're also sort of largest family size.”
