Has Costco Stock Become the New Recession-Resilient Retail King?

Walmart (NASDAQ: WMT) has long been considered a place for investors to park money in the retail space when consumers are under stress, but after its stock fell more than 8% in the session following its fiscal Q1 results and more than 9% after its fiscal Q2 results, that baton may have been passed to a close rival: Costco Wholesale (NASDAQ: COST).

Costco posted another quarter of solid results and was up 7% year-to-date as of Sept. 25, while Walmart is down 3%. Below, I'll take a closer look at the retailer's fiscal Q4 results and prospects to see if this is the recession-resistant retailer to own.

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Momentum continues

Costco continues to deliver strong results, with e-commerce sales leading the way. Adjusted digital revenue surged nearly 20%, with U.S. digital sales climbing more than 20%, helped by the company's partnerships with Uber Technologies and DoorDash.

Overall, the company's fiscal Q4 revenue jumped 11% to $95.7 billion, and adjusted earnings per share (EPS) rose 12% to $6.60, excluding a $0.15 benefit from tariff refunds. That was ahead of the analyst consensus for EPS of $6.55 on revenue of $95.7 billion.

Same-store sales jumped by 6.7% when adjusting for changes in gasoline prices and foreign currency. U.S. same-store sales climbed 7.2% (adjusted), while Canadian comparable-store sales rose 4.6% (adjusted). Other international same-store sales increased by 6.2% (adjusted).

Excluding gasoline and currency impacts, Costco's average transaction rose 3.3%, led by a 3.9% rise in the U.S. Traffic also increased by 3.3%, led by a 4.5% increase in international markets, while the U.S. saw a 3.2% gain. The retailer said that spending remained resilient in discretionary categories where it provides good value. It called out travel, jewelry, and major electronics as all seeing strong growth. Pharmacy sales also outperformed.

Membership-fee revenue jumped nearly 8% year over year, excluding currency movements, in the quarter to reach $1.85 billion. This was helped by a membership fee increase that it has now lapped. Meanwhile, paid memberships rose by nearly 4% to 84.1 million paid households. Higher-cost Executive membership climbed to 42.4 million members. These customers account for just over 50% of total paid memberships and made up 75.6% of Costco's worldwide sales.

Costco's membership renewal rate was 92.3% in North America and 89.8% worldwide. That was a slight 10-basis-point increase for both.

The warehouse club opened 11 new locations in the quarter, ending its fiscal year with a total of 939 stores. It expects to open 33 new stores (28 net) in fiscal year 2027, with openings in both domestic and international markets.

Is Costco stock a buy?

Costco continues to outperform its brick-and-mortar general merchandise retail peers. Its 7.2% increase in adjusted U.S. same-store sales (excluding gasoline sales) came in well ahead of the 2.7% and 2.6% increases that Target and Walmart posted last quarter, respectively. On top of that, it continues to see nice growth in members and membership revenue, and it is expanding its store base by about 3% a year.

Given this outperformance relative to Walmart, it does appear that Costco has taken the mantle of the best recession-resilient retailer. Consumers are clearly showing some signs of economic stress due to high gasoline prices and overall inflation, but Costco seems largely unaffected, even in discretionary categories.

While Costco continues to fire on all cylinders, the one knock on the stock is valuation. It trades at a frothy forward price-to-earnings ratio (P/E) of nearly 41. That's below the 50-plus multiple it has traded at over the past few years; however, it is still not cheap.

While Costco is likely to remain a good defensive stock, I think, given its valuation, it will likely be pretty range-bound over the next couple of years as its P/E multiple compresses to more normal levels of between 25 and 35, where it traded before 2020.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, DoorDash, Target, and Walmart. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.