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Investors are choosing caution on Costco Wholesale Corp (Nasdaq: COST) today even though the membership-only big-box retailer came in ahead of Street estimates for its fiscal Q4.

Including today’s decline, COST shares are down nearly 15% versus their year-to-date high.

Why did Costco stock tumble after Q4 earnings?

While the headline numbers remained reasonably strong in the fourth quarter, Costco stock is under pressure on Friday because of the following three reasons:

1. Costco’s comparable sales growth hit a six-quarter low – signaling a moderation or slowing domestic growth momentum.
2. Costco shares are priced for perfection. Signs of deceleration can, therefore, trigger profit-taking and investor concern.
3. Several analysts maintained their neutral rating, while one even lowered his price target on COST shares following the earnings release.

Why COST shares are worth buying on the post-earnings dip

On the flip side, however, there are ample reasons for long-term investors to consider buying the post-earnings dip in the retail stock as well. These include:

1. Solid recurring revenues and customer loyalty, thanks to a powerful membership model. In Q4, membership fee income surged 14%, with renewal rate keeping strong at 90% globally.
2. Continued upside in comparable sales, despite some deceleration. US same store sales cam in up 5.1% in the fourth quarter – a resilient showing amid cautious consumer spending.
3. Price leadership at scale. A 13 basis points increase in Q4 gross margin reflects Costco’s ability to maintain price discipline and value through Kirkland and sourcing efficiencies.
4. Room for future expansion. COST ended fiscal 2025 with 914 warehouses, having opened 27 new locations. It plans to add 35 more in fiscal 2026, showing global growth potential.
5. Robust cash returns and flexibility. Operating cash flow hit $13.33 billion for the year, with $14.16 billion in cash. The dividend was raised 12% to $1.30 per share in April.

Can Costco weather tariff risks?

Costco shares remains worth owning at current levels also because they appear well-positioned to navigate tariff headwinds, thanks to company’s scale, sourcing agility, and private-label strength.

On the Q4 earnings call, CFO Gary Millerchip noted that about one-third of U.S. sales stem from imported goods, but the company has actively mitigated exposure.

In some cases, it has swapped tariff-hit items with Kirkland Signature alternatives – leveraging its trusted private label to maintain value.

Additionally, Costco is adjusting its merchandise mix by sourcing more U.S.-made products and leaning into lower-risk categories like health and beauty.

These strategic pivots, combined with a disciplined cost structure, suggest COST stock can absorb tariff pressures without compromising its price leadership.

How Wall Street recommends playing COST stock

Despite premium valuation and an earnings release that didn’t quite please investors on all fronts, Wall Street continues to see significant further upside in Costco stock.

The consensus rating on COST remains at “overweight” with the mean target of roughly $1,086 indicating potential upside of nearly 18% from here.

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