Goldman Sachs Reiterates Costco Buy Rating, Target Price $1,159

Overview

This report summarizes key points from Goldman Sachs analysts' meeting with Costco management (including CFO Gary Millerchip, etc.) on June 1, 2026. The report reiterates the 'Buy' rating and 12-month target price of $1,159 for Costco (COST.US), believing the company has sustained competitive advantages in membership growth, pricing strategy, store expansion, and AI-driven digitalization, with a clear long-term growth trajectory.

Core views

Membership Experience and Store Strategy: Costco has attracted many new members in recent years, especially younger demographics, and observed increased digital channel interaction. Slightly more than half of new stores will be in the US, focusing on 'infill' locations to relieve pressure on high-traffic stores. Management prefers self-cannibalization over letting competitors capture share - this brings fewer new members but increases shopping frequency for existing members, benefiting overall sales. Pricing and Gross Margin Strategy: Approximately 95% of Costco's price adjustments are proactive price reductions rather than competitive responses. In the recent fiscal quarter, core same-store gross margin declined 9 basis points year-over-year, mainly due to price reductions in fresh and grocery categories. The company explicitly stated it does not pursue significant gross margin expansion, with the long-term goal of achieving modest gross margin improvement through operating leverage, better procurement, and retail media efficiency, while passing some tariff rebates back to members. Digitalization and AI布局: Costco is accelerating digitalization, recently upgrading App search functionality and actively exploring AI applications. Since the company doesn't advertise, it naturally receives 'excessive exposure' in AI search due to its value-for-money products. The company adheres to a streamlined strategy of approximately 4,000 SKUs and uses LLMs to optimize consumer reach. AI is also used for sales forecasting to improve inventory, while personalized recommendations have achieved conversion rates 3 times higher than conventional methods, contributing nearly $500 million in e-commerce sales.

Analysis framework

Goldman Sachs employs a top-down consumer retail analysis framework, focusing on core drivers of membership-based warehouse retailers: membership renewal rate, revenue per member (ARPU), same-store sales growth, and gross margin stability. The report verified Costco's execution progress in three areas through management communication: demand side (membership value perception), supply side (store network optimization), and technology enablement (AI/digitalization), combined with its risk-return model (based on relative P/E multiples of 200%/210%/220%) to derive the target price.

Methodology notes

• Industry Analysis FrameworkVolume-price decomposition

  Core retail growth can be decomposed into traffic (member count/shopping frequency) and average transaction value (ARPU)

  The report attributes Costco's growth to increasing shopping frequency for existing members through infill stores (volume) and maintaining value-for-money through price reductions (price), thereby driving same-store sales growth.

• Valuation MethodPE/PEG valuation

  Risk-return framework based on relative P/E multiples

  Goldman Sachs uses relative P/E multiples (200%/210%/220%) under downside/base/upside scenarios to construct the target price, reflecting judgment on the reasonableness of Costco's valuation premium.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Low gross margin but high-turnover, strong cash flow business model

  Costco does not pursue high gross margin, but creates stable free cash flow through extreme supply chain efficiency and membership fee model, which is the core support for its long-term valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• COSTCO WHOLESALE CORP (COST.US)

  Core coverage subject, directly benefiting from所述 strategy execution

  Strengths

  Strong member loyalty, efficient supply chain, unique low-margin high-turnover model, robust cash flow

  Weaknesses

  Lower international new store membership renewal rates, transportation costs affected by oil prices

Key data

• Target Price$1,15912-month target price based on relative P/E multiples
• Core Same-Store Gross Margin Change-9 bps y/yDecline in F3Q YoY, mainly due to fresh and grocery price reductions
• Personalized Recommendation Conversion Rate3xCompared to conventional conversion rate, contributing nearly $500 million in e-commerce sales
• Number of SKUs~4000Adhering to streamlined SKU strategy to ensure product quality and value-for-money

Impact & implications

The report believes that Costco will continuously strengthen its membership value proposition and expand market share in the competitive retail environment through 'self-cannibalizing' store expansion, proactive pricing strategy, and AI-driven digital upgrades. Despite short-term pressures such as rising transportation costs, its business model is highly resilient with high long-term growth certainty, supporting the current valuation level.

Risks

• Multi-dimensional competition from grocery stores, convenience stores, hypermarkets, other warehouse membership stores, and pure e-commerce platforms
• Cost pressure from commodity prices, exchange rate fluctuations, or tariff policies
• Weakening consumer demand environment
• Macroeconomic headwinds
• Supply chain and freight issues