Costco sales slowdown highlights valuation risk as June comps miss expectations

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Costco sales slowdown valuation risk

Highlights

Costco June sales rise 10.6% to $29.4 billion but U.S. comparable sales ex-gasoline increase 7.6%, missing Mizuho's 8%-9% forecast, pushing shares down over 4%.
Domestic traffic growth slows to 3.2% in June and average ticket ex-gasoline, FX, and inflation eases to 3.7%, indicating broad moderation; e-commerce rises 21.5%.
Costco trades at 41 times forward earnings versus Walmart's 36.5 and S&P 500's 20.5, highlighting increased valuation risk if growth moderates further.

June sales report and market reaction

As reported by CNBC, Costco says total June sales rise 10.6% from a year earlier to $29.4 billion, slightly below expectations, while U.S. comparable sales excluding gasoline increase 7.6%, down from 8.7% in May and below Mizuho forecasts of 8% to 9%. Shares fall more than 4% on Thursday, even as the stock remains up about 5.5% so far this year.

Domestic traffic rises 3.2% in June, about 50 basis points slower than the prior month. Excluding gasoline, foreign exchange and inflation, average ticket growth eases to 3.7% from 4% in May, showing a broader moderation across categories.

There are still pockets of strength in the monthly update. Ancillary businesses, including gasoline and pharmacy, perform well, and e-commerce sales jump 21.5%, slightly faster than May's 20.9%, likely helped by Costco's online Membership Appreciation Days event held from June 22 through June 26.

Consumer backdrop and investor focus

Commentary around the results points to a difficult retail environment rather than a major shift in Costco's competitive position. Jim Cramer says Costco is in a tough patch but remains a strong defensive retailer, while Jeff Marks says the weaker reaction reflects comparisons with May rather than a breakdown in the business.

The broader sector backdrop remains subdued. The S&P Retail ETF, XRT, is up only 1.7% year to date, and KeyBanc Capital Markets' latest consumer survey finds weaker spending intentions and lower financial confidence in the March to June quarter as shoppers worry about food costs, personal income and high gas prices.

For investors, the larger issue is valuation. Costco trades at 41 times forward earnings, according to FactSet, above Walmart's 36.5 times and roughly double the S&P 500's price-to-earnings ratio of nearly 20.5, reinforcing that even a solid but not exceptional monthly report can pressure the shares.

Membership growth is also likely to remain in focus. In its fiscal 2026 third-quarter earnings report released in late May, paid members reach 82.9 million, up 4.1% from a year earlier, while the worldwide renewal rate holds at 89.7%; Costco is set to release July sales on Aug. 5 and its fiscal 2026 fourth-quarter earnings on Sept. 24.

In our earlier analysis of Costco (COST), we highlighted the company’s strong June sales growth (up 10.6% year over year) alongside a steady quarterly dividend, even as the stock traded below key moving averages. We also noted that technical indicators pointed to elevated downside risk and a likely consolidation range, suggesting sentiment and valuation pressures could outweigh solid operating momentum in the near term.

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