COST did very well but not good enough for the market. Stock fell over 3%

Total Revenue: $70.52 billion (comprising $69.15 billion in net sales and $1.37 billion in membership fees), up roughly 11.5% year over year and beating analyst estimates.

Net Income: $2.19 billion, up 15% year over year.

Diluted EPS: $4.93, compared to $4.28 in the same quarter last year.

Comparable Sales: Up 9.8% worldwide (or 6.6% when excluding changes in gas prices and foreign exchange).

Gross Margin: 11.04%, a drop of 21 basis points from the prior year.

Their biggest strength: Membership

Membership Strength: Membership fee income grew 10.7% to $1.37 billion.Total paid members reached 82.9 million (up 4.1%), while the higher tier Executive Memberships grew an impressive 9.6%.Renewal rates remained incredibly sticky at 92.2% in the U.S. and Canada.

Why the Share Price Fell

Even with a top and bottom line beat, Costco shares declined post-earnings for a few key reasons:

• Priced for Perfection: Going into earnings, Costco was trading at a massive premium with a forward P/E ratio hovering around 48 to 52x, significantly higher than peers like Walmart. The market had already priced in a flawless quarter, meaning simply "beating expectations" was not enough to satisfy investors.
• Margin Compression: The reported gross margin fell by 0.21% to 11.04%. While part of this was skewed by gas sales, core margins were also down slightly. Management noted they deliberately invested in lowering prices for members on everyday fresh food items like beef and eggs, prioritizing member loyalty over short-term margin expansion.
• Slight Slowdown in Member Growth: While overall membership numbers are solid, analysts noted a slight slowdown in the year-over-year growth rate for new sign-ups, which management attributed to a temporary lull in new warehouse openings in major markets during the quarter.

Overall, I think a subscription business that is growing at over 10% each year with minimal churn, it is the reason why it commands the valuation. Now that it is back to 200EMA, I will likely take a bite or two here.