Roth Analyst Takes Contrarian View on Costco, Recommends Selling Shares Amid Slowing Growth and Rising Competition

A senior analyst at Roth has issued a sell recommendation on Costco Wholesale (COST), citing decelerating membership growth, intensifying competition from Walmart, and broader demographic headwinds. The move marks a shift in sentiment for the retail giant amid evolving consumer dynamics.

The analyst's contrarian stance centers on a notable slowdown in Costco's membership expansion, with annual growth dipping to 2.4% in the latest fiscal quarter—well below the 4%+ rates seen in prior years. This trend, combined with a 1.8% year-over-year decline in same-store sales in the U.S. segment, signals weakening consumer momentum despite the company's historically resilient model. Increased pressure from Walmart, which has accelerated its membership-driven strategy with enhanced delivery offerings and price-matching guarantees, is further eroding Costco's competitive edge. Walmart reported a 5.2% increase in membership sign-ups during the same period, capturing share in low-income and suburban markets where Costco has traditionally held sway. Demographic factors are also contributing to the caution. The U.S. fertility rate has declined to a record low of 1.62 births per woman in 2024, a trend that economists link to reduced household formation and lower demand for bulk goods—core drivers of Costco’s business. With 25% of Costco’s U.S. membership base composed of households with children under 18, this shift poses a structural challenge. The recommendation follows a broader reassessment of consumer discretionary equities, as inflationary pressures and shifting spending patterns persist. While COST remains a large-cap staple, the analyst argues the stock’s recent 18% rally in 2024 may have priced in excessive optimism, leaving little margin for error. Trading volume has increased 40% over the past two weeks, reflecting growing investor unease.