U.S. retail outlook highlights Costco strength, Walmart favored on valuation

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Costco and Walmart retail outlook

Highlights

Costco's Q4 net sales rose 11.2% to $93.9 billion and EPS reached $6.75, surpassing expectations, with 9.4% comparable sales growth and 3.8% paid membership increase.
Digitally enabled sales, including third-party delivery, exceeded $33 billion in fiscal 2026, up over 20%, while nationwide DoorDash rollout boosted website and app visits 30%.
Weiss Ratings rates Costco 'C+' due to its 44x trailing earnings multiple and prefers Walmart with a 'B-' buy rating, citing valuation advantages and a supportive large-retailer backdrop.

Costco results show resilient member spending

As reported by Weiss Ratings, Costco’s fourth-quarter results point to steady consumer demand across both essential goods and higher-ticket discretionary purchases. The warehouse retailer says members remain selective on everyday spending, but still trade up when they see strong value in categories such as prime beef, wagyu, fragrances, massage chairs, gold and jewelry.

Chief Financial Officer Gary Millerchip says Costco sent more than 750,000 members on cruises in fiscal 2026, up 16%, including one 154-night Regent Seven Seas booking worth more than $218,000. He also says digitally enabled sales, including third-party delivery, exceed $33 billion in fiscal 2026, rising more than 20%, while visits to Costco’s website and app jump 30% in the quarter after a nationwide DoorDash rollout.

Costco also receives $184 million in refunds tied to tariffs imposed under the International Emergency Economic Powers Act, and management says much of that money goes back into lower prices rather than being retained. The company highlights price cuts on produce, meat, beverages, home furnishings and hardware, including reductions in Kirkland Signature walnuts and Colombian whole bean coffee, and says it plans to keep reinvesting most of similar refunds collected in the current quarter.

For the 16 weeks ended Aug. 30, net sales rise 11.2% to $93.9 billion, while earnings reach $6.75 per share, up from $5.87 a year earlier and above Wall Street’s $6.53 expectation. Comparable sales increase 9.4%, or 6.7% excluding gasoline prices and currency effects, while paid memberships grow 3.8% to 84.1 million and the U.S. and Canada renewal rate edges up to 92.3%.

Consumer caution shapes holiday retail competition

The broader backdrop remains mixed for retailers heading into the holiday period. The University of Michigan’s final September consumer sentiment reading stands at 48.1 on Sept. 25, a four-month low, compared with 51.7 in August, while one-year inflation expectations rise to 4.6% from 4%.

Deloitte sees value-seeking behavior across income groups, with consumers switching brands and retailers and relying more on promotions. Bain & Co. forecasts November and December sales will top $1 trillion for the first time, up 4.5%, but says more than half of that growth will come from higher prices rather than higher volumes, underscoring pressure on discretionary demand.

Costco says inflation within its stores remains in the low single digits, although memory chips in consumer electronics, gasoline and petroleum-based products are key pressure points. Management says shopping frequency and average ticket, excluding gas and currency, each rise 3.3%, suggesting household budgets are still holding up even as comparable-sales growth cools over the summer.

Weiss Ratings argues that backdrop favors large retailers with loyal customers, supplier leverage and room to lower prices. While Costco is described as one of the best-run retailers globally, Weiss rates the stock a “C+” hold and points to its roughly 44 times trailing earnings multiple, while Walmart carries a “B-” buy rating and is seen as the more attractive investment on valuation.

In our earlier coverage of Target’s holiday pricing push, we outlined how the retailer lowered prices on nearly 2,000 items across home goods, apparel and accessories to appeal to value-seeking shoppers. That move built on an earlier round of cuts covering more than 3,000 products, underscoring how major chains are leaning into promotions and price reductions as consumer budgets remain under pressure heading into the key holiday period.

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