By Sabrina Escobar

Costco Wholesale's latest earnings report could be another proof point for why the membership club deserves a lofty valuation.

The retailer reports earnings after the market closes Thursday. Wall Street expects Costco will report adjusted earnings of $4.24 a share on $63.1 billion in revenue for the fiscal third quarter ended, according to FactSet. Same-store sales are projected to rise by 6% from a year ago.

Analysts argue that Costco is less exposed to tariffs than many other retailers. About a third of the company's sales in the U.S. are imported, and less than half of those items come from China, Mexico, and Canada. The company's scale also gives it a leg up in negotiating better prices with vendors, which could help offset any existing tariff effects.

It also helps that Costco's shoppers are often fiercely loyal -- lured in by the retailer's treasure-hunt model and bulk pricing on everything from groceries to more discretionary purchases.

That said, the company won't be entirely immune to macroeconomic challenges. Sales growth cooled slightly in April from the breakneck increase seen at the beginning of the year. Profits could also come slightly under pressure from new efforts to offset tariffs -- but the company is still well-positioned to weather the current cloud of uncertainty.

"There's probably not a lot that can come from this print that will change the market's perception that COST is a good place to be," wrote Michael Lasser, an analyst at UBS.

Costco stock reflects that, with shares up about 11% this year and commanding a valuation that is hovering around all-time highs. The stock trades at 56.17 times the current fiscal year's earnings, per FactSet.

Even a March earnings miss, which temporarily dragged shares lower, couldn't stop Costco's momentum for long. Although shares haven't rebounded to levels seen before those results, they have jumped 14% from the year-to-date low struck on March 13. That suggests that the wholesale club remains a haven from tariff volatility for many investors.

Earnings will determine whether the rally continues, but the real test will be in the coming months as U.S. trade policy keeps evolving. If Costco is able to keep maneuvering through the tariff upheaval smoothly, it may just prove time and again why it is deserving of a premium price tag.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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May 29, 2025 01:30 ET (05:30 GMT)

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