Shortly after the opening bell, we will sell 40 shares of Costco at roughly $860. Following the trade, Jim Cramer’s Charitable Trust will own 40 shares of Costco, decreasing its weighting to about 0.9% from 1.8%. We’re cutting our Costco position in half following Jim’s comments on Sunday, when he said we may need to take action on the slumping retail stock. We’re not early to the call that Costco shares have become a battleground situation, but we still see the need to take action after yet another mixed quarter . At the heart of Costco’s issue is the persistent dip in membership renewal rates. We’ve long believed that a Costco subscription would be among the last things consumers would cut back on, given the incredible value a membership provides. But over the past four quarters, renewal rates have dipped to 89.7% worldwide, down from 90.4%, and to 92.2% in the U.S. and Canada, down from 92.8%, primarily due to increased churn among online shoppers. Furthermore, management said on the earnings call that this churn will continue over the next few quarters. Renewal rates remain very high, and there’s no indication of a material problem for Costco’s business. The stock, however, plays by different rules. From that perspective, management’s inability to swiftly reverse the decline will make it tough for the stock to sustain its lofty valuation of about 44 times forward earnings per share. Remember, the company derives most of its profits from membership fees, not from sales in its retail operations. Therefore, softness in paid membership growth and a continued dip in renewals could lead to a slowdown in earnings growth, pressuring the PE multiple investors are willing to pay. From this sale, we will realize a 200% gain on shares purchased in early 2020. (Jim Cramer’s Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
