Costco continues to see strong sales growth, but certain metrics are slowing it down and putting it under increased scrutiny from investors. Ahead of third-quarter results to be released on Thursday evening, shareholders including the club are hoping to see signs of improvement in the pace of new member additions and renewals, following the first decline since late 2025. The high-margin commission fees of major retailers remain the cornerstone of the company’s business. The total number of paid members has historically grown in the mid-to-high single digits (6%-7%), but has fallen below 5% over the past year. By the end of the second quarter of fiscal 2026, which ended in February, overall paid membership growth had slowed to 4.8%. Part of this slowdown is due to a 30 basis point reduction in the renewal rate for the third quarter of fiscal 2025, which ended last May. It fell another 40 basis points in the next quarter. In each of the first two quarters of fiscal 2026, the decline appeared to have stabilized, moderating to 10 basis points each. By the end of the most recent second quarter, the U.S. core membership renewal rate was 92%, while the global renewal rate was just under 90%. Although seemingly small, these reductions are significant. While same-store sales and store foot traffic are strong metrics, recurring membership fee income supports our investment thesis. That’s why Costco trades at a premium compared to its retail peers. The stock currently trades at 50 times expected 2026 earnings, about twice the typical valuation for consumer staples stocks, according to JPMorgan. Its closest competitor, Walmart, has a stock price of 40x. Slowing membership growth threatens the company’s best-in-class valuation, something Jim Cramer alluded to when previewing the quarter during Thursday’s morning meeting. “I’m looking for decent numbers,” Jim said Thursday before warning against taking action. “You don’t have to buy before[the quarter]. That’s a mistake. There’s been a lot of movement.” Management blames the decline in membership in part on tougher year-over-year comparisons, but there’s more to the story than that. The biggest factor is the shift to digitally acquired members, especially younger consumers who behave differently than Costco’s traditional warehouse shoppers. Bank of America analyst Christopher Nardone said online memberships are particularly “capricious,” meaning they don’t renew at the same pace, and assessed how obvious the changes are. “In 2019, about 5% of new members were under 40 and signed up digitally. Today, it’s nearly half that number,” Nardone said in an interview with CNBC. While additional online sign-ups are contributing to increased dues revenue and overall membership base, younger digital members who are growing rapidly and may not have renewed their memberships are a big part of the overall renewal calculation, Costco CFO Gary Millerchip said on Costco’s webcast last quarter, “That’s pushing down the average,” adding, “We’re feeling the impact of that.” The focus on digital started several years ago. JPMorgan said in an in-depth research report released in April that Costco’s club model is built on “the hyperefficiency of a limited assortment.” Analysts estimate that Costco has approximately 3,700 stock-keeping units (SKUs) across a variety of categories in its typical warehouse. This number is much lower than Walmart’s 120,000 SKUs. Analysts said e-commerce is “unlocking the box” and expanding online assortments skewed towards big-ticket discretionary items such as mattresses, electronics, home fitness equipment and outdoor power equipment. Mizuho’s David Bellinger believes the underdevelopment of these online channels is why many of these new digital customers seem less interested in Costco’s traditional warehouse experience. Mr. Bellinger noted that some participants are looking for the convenience of a one-time purchase or delivery, rather than long-term loyalty. “If you come in and buy one big item, it might come out a year later and not be renewed, which naturally leads to higher churn,” he said. Membership growth has also slowed as consumers are under pressure. Bank of America’s Nardone said it’s not surprising that growth will slow as lower-income consumers are becoming more cautious with their spending. “These are tough times for some low-income consumers,” Nardone said. He referenced Walmart’s recent post-earnings comments regarding the challenging economic environment. “Low-income consumers are more budget-conscious and are likely living through financial hardship,” Walmart Chief Financial Officer John Rainey said, especially after fuel prices rose this quarter. This pressure drives shoppers to look for value when shopping across different categories. Still, Nardone contrasted the slowing growth in Costco’s total membership with the accelerating growth in executive membership, the company’s most valuable demographic and a stronger indicator of customer loyalty and spending engagement. Nardone emphasized that while total membership is up about 5%, executive membership has grown at an accelerated rate of 9% over the past two quarters, noting that executive membership accounts for nearly three-quarters of Costco’s dues revenue. “That’s the key statistic that gives me peace of mind,” Nardone said. Mizuho’s Bellinger also cited rising gas prices as a tailwind that makes Costco membership more attractive in an inflationary environment as consumers look for ways to offset rising daily costs. “When gas prices go up, I think people think their memberships are worth more and should renew,” Bellinger said. “Basically, just getting discounted gas[from Costco]will save you more money than the actual membership fee,” he added. Mr. Bellinger explained that Costco gas stations often act as traffic directors for the broader business, and gasoline buyers often also purchase within the warehouse. Beyond the changing digital mix, Costco executives also point to a decline in new warehouse openings in high-growth international markets, which have historically been a big driver of membership growth. If Costco opened a warehouse in China or Japan, “you could get 5 to 10 times as many members,” Bellinger said, adding that stores in Asian countries could generate up to 100,000 to 200,000 signups on the first day of opening, which could be significantly more than a typical U.S. warehouse opening. Mizuho has an Outperform rating and a $1,100 price target. Encouragingly for investors, analysts broadly said management is proactive and focused on simple but effective fixes to demonstrate Costco’s value to all members, especially those who are digitally fickle. Automatic updates and targeted engagement are big drivers. Something as simple as an email reminder that a membership is about to expire “helps stabilize the metrics,” Nardone said. Other benefits include a $10 monthly Instacart credit for online shopping, extended shopping hours for executive members, and free items for digital members who automatically renew their membership in the warehouse, all examples of practical steps taken by management that have increased membership upgrade rates. Investors have been rewarded for their efforts so far, with Costco stock up nearly 17% since the beginning of the year, outpacing the S&P 500’s 9.8%. Another opportunity that could enhance Costco’s digital offering is its “speed to consumer,” or how quickly products can get to consumers, something Nardone said competitors like Walmart and Amazon do very well. “Especially since a large part of their business is groceries, the more they can improve their delivery speed, the more their membership metrics will improve,” Nardone said. “Convenience becomes another factor when most people’s wallets are under extreme pressure,” he added. Bank of America analysts rate Costco a Buy and have a price target of $1,185. Costco’s foray into building stand-alone gas stations, rather than locating them right next to warehouses, is the kind of initiative that could appeal to younger members and encourage renewal, Jim added during Thursday’s morning meeting. For investors, Thursday’s earnings report may be less about what Costco says about quarterly sales trends and more about whether management can convince Wall Street that its membership engine is healthy despite signs of moderation. Stock prices this year and premium valuations leave little room for error. We maintain a rating of 2 on the stock and a price target of $1,100. (Jim Cramer’s Charitable Trust is long-cost. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. 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