What Happened?

Shares of membership-only discount retailer Costco (NASDAQ:COST) fell 6.6% in the morning session after the company reported weak fourth quarter (Q2 2025) results: its operating margin showed no expansion year on year, and its EPS missed. The standout result for the quarter was a 9.1% increase in sales, fueled by an 8.3% gain in U.S. comparable sales and a strong 20.9% surge in e-commerce sales. International markets saw weaker gains, with Canada up just 4.6% and other regions lagging further behind. Looking ahead, Costco's strong e-commerce momentum and resilient U.S. sales should position it well against broader retail headwinds. Overall, this was a mixed quarter, given the limited profit gains.

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What The Market Is Telling Us

Costco’s shares are not very volatile and have only had 1 move greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 12 months ago when the stock dropped 7.7% on the news that the company reported fourth-quarter results with revenue falling short of analysts' expectations. Free cash flow also underwhelmed during the quarter with the company recording a significant amount of cash burn. Overall, we think this was a mixed quarter considering fellow retail peer Walmart (NYSE:WMT) beat Wall Street's sales estimates convincingly. Investors were likely expecting better top line numbers from Costco.

Costco is up 3.9% since the beginning of the year, but at $945.00 per share, it is still trading 12.2% below its 52-week high of $1,077 from February 2025. Investors who bought $1,000 worth of Costco’s shares 5 years ago would now be looking at an investment worth $3,129.

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