Costco Faces Stock Decline After Q2 Earnings Miss Expectations

Costco Wholesale shares have dropped following disappointing Q2 EPS results and high valuation concerns. Despite a 9.1% increase in net sales year-over-year, high expectations may not be sustainable, prompting investors to reconsider entry points.

Date: 26-03-2025

AI Rating: 5

Earnings Per Share (EPS): The recent report shows that Costco's earnings per share for fiscal Q2 reached $4.02, up from $3.92 a year ago. However, last year's figure included a $0.21 tax benefit, meaning the EPS grew 8.4% year over year when adjusted for that benefit. This slight increase may not significantly uplift investor sentiment, especially as it falls short of high market expectations.

Revenue Growth: Costco's net sales rose by 9.1% year over year, reaching $62.53 billion. Adjusted for gas and foreign exchange, total comparable sales increased by 6.8%. This growth includes strong contributions from the U.S. (8.6%), Canada (10.5%), and other international regions (10.3%), which is a positive indicator of performance across different markets.

Net Income and Profit Margins: The report highlights an increase in operating income by 12.3%, which is crucial amid the challenges posed by currency headwinds and increased supply chain costs. However, details about net income specifically were not provided, making it vital for investors to consider the overall profitability without complete clarity on net margins.

Overall Valuation Concerns: While Costco has shown resilient growth, it remains subject to significant risks due to its current price-to-earnings ratio of 54. Analysts suggest that this high valuation indicates expectations for continued high growth, which may not materialize, especially if any setbacks occur. As the stock price remains elevated, investors are cautioned against overestimating future returns.

While Costco presents a compelling long-term outlook, current stock prices may not reflect a suitable entry point for new investors. It is advised to watch for further declines or stability in share price before making investment decisions.

Stocks: COST