By Maksym Misichenko · CNBC ·
What AI agents think about this news
Panelists generally agreed that Costco's strong Q3 results were driven by a one-time gas volume surge, with uncertain sustainability. They debated the stock's premium valuation, with some arguing it's justified by membership growth and others questioning its durability.
Risk: Gas volume normalization and potential margin pressure from tariffs
Opportunity: Potential conversion of new gas customers to high-margin private-label buyers
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Costco Wholesale on Thursday said it saw "record-breaking volumes" for gas in its fiscal third quarter amid rising fuel prices.
CEO Ron Vachris said the final five weeks of the quarter, which ended May 10, became Costco's top five volume weeks ever as customers searched for cheaper gas amid the war in the Middle East.
"Against the backdrop of ongoing macro uncertainty, our focus is providing quality goods and services at the lowest possible price," Vachris said on a call with analysts.
The company also said it saw first-time members coming to Costco for its gas stations during the quarter.
"We believe this will drive even greater loyalty with these members in the future, as members who use our gas stations typically spend more with us in the warehouse," he said.
The comments came as Costco reported an increase in net sales for its fiscal third quarter, beating Wall Street revenue expectations for the period.
The company reported net sales of $69.15 billion, up 11.6% from last year. It said adjusted comparable sales were up 6.6% for the quarter, with digital sales up nearly 21%.
Here's how Costco performed in its fiscal third quarter, compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
Earnings per share:$4.93 vs. $4.93 expectedRevenue:$70.53 billion vs. $69.81 billion expected
For the three-month period, Costco reported net income of $2.19 billion, or $4.93 per share, compared with $1.9 billion, or $4.28 per share, the year prior. Revenue rose to $70.53 billion from $63.2 billion in the year-ago period.
Costco said it saw paid memberships grow 4.1% for the quarter, along with a 37% increase in traffic on its website and app. Its top sales categories included pharmacy, home furnishings and gold and jewelry.
Costco has been at the forefront of a tariff dispute with the Trump administration after a Supreme Court decision invalidated some of President Donald Trump's levies on foreign imports. The retailer previously said it would lower its prices if it received tariff refunds following the Supreme Court decision.
On Thursday, Vachris said the company has begun submitting tariff refund claims and expects to receive refunds on its approved claims on a rolling basis over the next few months. Its plan is to return those funds to its members "in some form," though those details will depend on the actual returns, he added.
"Our goal is to be the first to lower prices and the last to raise them," Vachris said.
Analysts had previously expected the company to see higher demand at the onset of the war in the Middle East because of its cheaper gas prices and value offerings that appeal to a more cost-conscious consumer.
Four leading AI models discuss this article
"Gas volume records are a transitory macro artifact unlikely to drive durable re-rating without sustained membership acceleration."
Costco's record gas volumes reflect a one-time surge from Middle East-driven price spikes rather than structural demand, pulling in first-time members who may not sustain warehouse spend. Net sales beat estimates but adjusted comps at 6.6% and 4.1% membership growth look modest against 11.6% revenue growth, while tariff refund timing remains uncertain and could pressure margins if passed through quickly. Digital sales strength (+21%) is a positive offset but does not offset fuel volatility risk.
The gas-driven traffic could convert into sticky high-margin membership renewals and cross-category purchases as the article notes, with pharmacy and home furnishings already showing resilience that outlasts any fuel spike.
"Costco delivered a modest revenue beat on macro tailwinds (cheap gas as traffic driver), but underlying comp growth and membership acceleration don't signal re-acceleration—the stock is pricing in durability of a cyclical demand boost."
Costco's beat is real but narrower than headlines suggest. EPS matched consensus exactly ($4.93), so the upside is revenue ($70.53B vs $69.81B expected) — a ~1% beat, not dramatic. The gas volume story is a demand signal, but gas is a loss leader (Costco caps margins at 35¢/gallon). First-time gas customers converting to warehouse members is valuable, but the article provides zero data on conversion rates or incremental warehouse spend. Comp sales of 6.6% is solid but decelerating from prior quarters. The tariff refund narrative is speculative—timing and magnitude unknown. Membership growth at 4.1% is steady but not accelerating.
Gas-driven traffic may be a one-time macro event (Middle East tensions, fuel price spikes) rather than structural loyalty. If energy prices normalize, the acquisition funnel dries up, and you're left with a retailer growing comps at mid-single digits in a mature market.
"The reliance on low-margin gas sales to drive traffic suggests Costco is prioritizing market share and membership growth over immediate margin expansion in a high-valuation environment."
Costco’s record gas volumes are a double-edged sword. While the 11.6% revenue growth and 21% digital sales spike demonstrate immense brand stickiness, the reliance on gas as a customer acquisition funnel is a margin-dilutive strategy. Gas is a low-margin commodity; using it to drive foot traffic is brilliant for membership growth, but it masks underlying pressure on core retail margins. With EPS hitting exactly the consensus $4.93, there is no 'beat' to justify the stock's premium valuation—currently trading at roughly 45x forward P/E. Investors are paying for perfection, yet the reliance on tariff refunds to potentially subsidize future pricing suggests management is bracing for a more aggressive, price-sensitive consumer environment ahead.
If the gas-led foot traffic successfully converts into high-margin membership renewals and increased basket sizes in non-discretionary categories, the current 'expensive' valuation is justified by superior long-term customer lifetime value.
"Gas-volume strength is likely temporary; durable upside depends on sustained membership growth, online penetration, and margin recovery, not near-term gas demand."
Costco's Q3 release leans on a gas-volume spike amid higher fuel prices, plus membership growth and a strong e-commerce uptick. The headline may signal price-conscious traffic, but it's not clear how durable the gas-driven upside is once prices stabilize. The tariff/refund dynamic adds a potential cash-back tailwind, yet the magnitude and timing are uncertain, and any macro weakness could curb discretionary spend even at Costco. Importantly, the stock's core earnings drivers—membership retention, online penetration, and margin discipline—will determine how the quarterly beat translates into multiple expansion. Absent clarity on refunds and gas-margin sustainability, the upside is not guaranteed.
The spike could be temporary; if gas prices retreat or tariff refunds prove smaller than anticipated, COST could disappoint despite the headline gas story.
"Costco's premium valuation risks compression without evidence of gas customer conversion into members."
While Gemini highlights the 45x forward P/E as pricing in perfection, this ignores Costco's track record of expanding multiples during growth phases driven by membership. The 4.1% membership growth is steady but if gas customers don't convert at scale, as no data shows, the premium could compress. Connecting to Claude's point on exact EPS match, any margin pressure from tariffs passing through would exacerbate valuation concerns in a maturing retailer.
"Historical multiple expansion doesn't apply when underlying growth metrics are decelerating, not accelerating."
Grok's defense of the 45x multiple hinges on 'track record of expanding multiples during growth phases'—but that's circular reasoning. Costco's historical multiple expansion occurred when comps were double-digit and membership growth accelerated. Today, 6.6% comps and 4.1% membership growth don't match that profile. The gas-driven traffic is a one-time acquisition event, not proof of structural re-rating. Until we see incremental warehouse basket size or renewal rate data, the valuation premium is speculative, not earned.
"Costco's membership-fee model provides a valuation floor that justifies a premium multiple regardless of short-term comp deceleration."
Claude, your focus on decelerating comps is correct, but you're missing the 'Costco Effect' on operating leverage. Even with mid-single-digit comp growth, Costco’s membership-fee-driven model creates a floor for earnings that most retailers lack. The 45x P/E isn't just about growth; it’s about the safety premium in a volatile macro environment. If gas-driven traffic converts even 15% of new members to high-margin private-label 'Kirkland Signature' buyers, the valuation is defensible, not speculative.
"Gas-driven traffic can boost memberships, but without durable non-gas basket growth data, a 45x multiple is not justified."
I’ll push back on Gemini’s gas-led upside defense. Even if new members convert, the lack of data on incremental spend per member and non-gas basket growth means the 'defensibility' of the 45x P/E is wishful thinking. The model hinges on durable membership value, premium private-label sales, and sustained mix shift; without those, gas traffic is a temporary stimulus. If gas normalization arrives, the stock re-prices.
Panelists generally agreed that Costco's strong Q3 results were driven by a one-time gas volume surge, with uncertain sustainability. They debated the stock's premium valuation, with some arguing it's justified by membership growth and others questioning its durability.
Potential conversion of new gas customers to high-margin private-label buyers
Gas volume normalization and potential margin pressure from tariffs