Costco Wholesale Corporation (NASDAQ:COST, XETRA:CTO) delivered a strong fiscal third quarter performance, with its value-focused strategy, membership growth and fuel business continuing to support sales momentum, according to Jefferies analysts.
Jefferies wrote that the warehouse retailer posted double-digit sales growth, solid comparable sales and continued strength in memberships and digital operations.
Net sales rose 11.6% during the quarter, while comparable sales increased 9.8%, or 6.6% excluding the effects of gasoline prices and foreign exchange. Traffic increased 2.4%, and average ticket size grew 7.3%.
The analysts highlighted Costco's fuel business as a key contributor to performance. Record gasoline volumes during the quarter attracted price-conscious consumers, boosting store visits and purchase frequency. Management also indicated that fuel customers tend to spend more and renew memberships at higher rates, reinforcing the business as a driver of both sales and customer loyalty.
Membership fee income climbed 10.7% to $1.37 billion, supported by 4.1% growth in paid memberships and 9.6% growth in Executive memberships. Renewal rates remained steady at roughly 92% in the United States and Canada.
Jefferies also pointed to continued digital momentum, with digitally enabled comparable sales increasing 21.5% and website and app traffic rising 37%. The analysts attributed the gains to improvements in delivery services, personalization features and mobile app functionality.
The firm noted broad-based sales strength across categories, including discretionary merchandise. Fresh food and non-food categories posted high-single-digit comparable growth, while food and sundries recorded mid-single-digit gains.
Despite the strong sales trends, Jefferies identified margin pressure as a weaker aspect of the quarter. Gross margin declined approximately 21 basis points to about 11.04%, reflecting the company's continued investment in lower prices and a larger contribution from lower-margin businesses such as fuel and e-commerce.
The analysts also noted that while selling, general and administrative expenses improved on a reported basis, underlying leverage was partially offset by healthcare cost inflation and one-time items. Membership growth, while still positive, has moderated to roughly 4% to 5%, reflecting a slower pace of new international market openings.
Looking ahead, Jefferies expects Costco's emphasis on competitive pricing and value to continue supporting traffic gains and market share growth.
The firm also pointed to the company's long-term plan to open more than 30 warehouses annually, relocate high-volume locations and improve operational throughput.
Jefferies wrote that the retailer's fuel and membership model remains a key strength, with elevated fuel engagement helping drive customer loyalty, shopping frequency and long-term growth.
The analysts added that membership growth in the 4% to 5% range appears to represent a more normalized pace, while renewal rates are stabilizing with targeted retention efforts helping offset pressure from digital sign-ups.
Costco shares are up almost 10% in the year to date at $947.