Costco's Fiscal Q1 Results Reveal Strong Digital Growth, But Valuation Remains Challenging

E-Commerce Surge Leads the Way

Costco’s latest quarterly performance highlights a particularly impressive surge in digital operations. The warehouse retailer’s online channel experienced a 20.5% jump in digital revenue, driven by 24% traffic growth and a 13% increase in average order value. Most notably, app traffic skyrocketed by 48%, reflecting strong consumer engagement through mobile channels.

The company attributes this digital momentum to strategic enhancements including personalized product recommendations, redesigned interface layouts, and upgraded search tools. The company reported a record Black Friday e-commerce event, capturing $250 million in non-food orders alone—a clear indicator of shifting consumer shopping patterns toward digital-first experiences.

Financial Performance Outpaces Expectations

Costco’s overall fiscal Q1 results demonstrated robust fundamentals. Total revenue climbed 8% to $67.31 billion, while adjusted earnings per share rose 11% to $4.50—surpassing analyst consensus estimates of $4.27 per share and $67.14 billion in revenue. This beat underscores the company’s operational efficiency despite broader market headwinds.

Same-store sales growth painted an even more compelling picture. On an adjusted basis (excluding gasoline and currency fluctuations), comparable-store sales increased 6.4%. U.S. operations posted a 5.9% adjusted increase, Canadian markets climbed 9%, and international locations rose 6.8%. Without these adjustments, average transaction value expanded 3.2% globally and 2.6% domestically, while foot traffic grew 3.1% worldwide and 2.6% in the U.S.

Category Strength and Geographic Diversity

Performance varied meaningfully across product categories. Fresh meat continued its dominant run with double-digit same-store sales growth, while overall fresh produce registered mid- to high-single-digit gains. Non-food categories delivered mid-single-digit growth, anchored by exceptional performance in jewelry and health/beauty items, each posting double-digit increases.

Regionally, the company’s same-store sales demonstrated the strength of its diversified geographic footprint and membership-driven model—a key competitive advantage against traditional brick-and-mortar rivals.

Membership Resilience and Paid Base Expansion

Membership revenue jumped 14% year-over-year to $1.33 billion, buoyed by September 2024’s price increase. Paid memberships expanded 5.2% to 81.4 million households globally, with higher-tier executive memberships surging 9.1% to 39.7 million. Notably, these premium tier customers represent just 49% of total paid memberships but generate 74.3% of worldwide sales—highlighting the lucrative nature of higher-margin membership tiers.

Renewal rates remained solid at 92.2% in North America and 89.7% worldwide, though younger digitally-acquired customers showed lower persistence, presenting an ongoing challenge for management.

Same-Store Sales Stack Up Against Competitors

When comparing competitive dynamics, Costco’s same-store sales momentum significantly outpaces major rivals. Walmart’s U.S. comparable-store sales rose 4.5%, while its Sam’s Club division achieved 3.8%—both meaningfully trailing Costco’s adjusted growth. Target’s performance lagged considerably, with same-store sales declining 2.7% during the comparable period.

This differential—where Costco’s same-store sales substantially exceed competitors in the same sector—suggests the company’s membership model and value proposition continue resonating with consumers in ways traditional retail cannot match.

Growth Prospects and Store Expansion

The warehouse operator added eight locations during the quarter (including one relocation), bringing the total store count to 921. However, management trimmed its fiscal-year new store guidance to 28 locations due to construction delays in Spain, though it maintained longer-term targets of 30+ annual openings.

The Valuation Puzzle

Despite delivering industry-leading operational results and same-store sales performance, Costco’s stock remains constrained by valuation multiples. The forward P/E ratio sits at 43.5 times—down from the 55+ times earlier in 2025, yet still elevated relative to the stock’s historical 30-40x range. This premium valuation explains the stock’s 5% year-to-date decline and 11% pullback over the trailing twelve months, despite underlying business strength.

Without significant multiple expansion or material earnings growth surprise, the stock likely faces a range-bound trading environment in the near term as the market demands the business “grow into” its current valuation.

Investment Implications

Costco continues firing on all cylinders operationally. The company’s same-store sales leadership, digital acceleration, membership economics, and category-level strength represent best-in-class execution. Yet the fundamental disconnect between operational excellence and stock performance reflects the market’s unwillingness to award the company the premium multiples it commanded earlier in the year. Until earnings growth materially accelerates or sentiment shifts, this valuation headwind will likely persist.