Costco's Growth Ambitions Meet Market Realities: Expansion Plan Echoes, Risks Linger

What happened

A recent Motley Fool article highlighted Costco's plan to open about 30 new net warehouses per year, aiming to boost revenue through expansion. This aligns with the DeepValue report's existing note on accelerated but disciplined warehouse growth as a core strategy to extend the membership base. However, the report critically flags early stress signals, including drifting renewal rates to 92.2% in the U.S./Canada and 89.7% globally, alongside slowing net new paid member additions. Despite strong Q1 FY26 results with 6.4% comps and 20.5% digitally enabled growth, the stock trades at a premium ~51x P/E, embedding high expectations that leave little tolerance for operational stumbles. The article's optimistic framing overlooks these vulnerabilities, emphasizing the need to look beyond surface-level growth narratives to assess execution risks and competitive pressures.

Implication

Costco's targeted ~30 annual warehouse openings support top-line growth but require substantial capex, estimated at $6,000–$6,500 million in FY26, which must be funded without straining the balance sheet. Success critically depends on maintaining high renewal rates and mid-single-digit comp sales, as any decline below 5% could erode the membership-driven cash flow model. With the stock at ~$956, trading at ~51x P/E, even minor disappointments in renewal trends or competitive share loss to Sam's Club and BJ's risk derating the premium multiple. The market's assumption of sustained high-single-digit membership-fee growth faces headwinds from demographic shifts and digital cohort maturation, making monitoring monthly comps and renewal rates essential. Therefore, while the growth narrative remains intact, the asymmetric downside in a bear case (~$750) justifies the DeepValue report's 'WAIT' rating, suggesting investors seek entry closer to $820 for better risk-adjusted returns.

Thesis delta

No material shift in the investment thesis; the news simply reiterates Costco's known expansion plans without addressing the core risks of membership durability and valuation overhang. The DeepValue report's cautious stance remains valid, as early cracks in renewal rates and competitive intensity persist, reinforcing the need for patience until a more attractive entry point or clearer stabilization in key metrics emerges.