Costco Wholesale Corp Earnings - Q4 2025 Analysis & Highlights
Costco Wholesale Corp. reported strong Q2 2026 results with double-digit net income growth, solid comparable sales performance, and strategic investments in warehouse expansion, digital capabilities, and member experience enhancements, while navigating tariff impacts and managing inflation through pricing discipline and supply chain optimization.
Key Financial Results
Net income reached $2.035 billion or $4.58 per diluted share, up nearly 14% from $1.788 billion or $4.02 per diluted share in Q2 2025.
Net sales for Q2 were $68.24 billion, an increase of 9.1% from $62.53 billion in Q2 2025.
Comparable sales were up 7.4% or 6.7% adjusted for gas price deflation and foreign exchange.
Digitally enabled comparable sales were up 22.6% or 21.7% adjusted for foreign exchange.
Gross margin rate was 11.02%, up 17 basis points year-over-year and up 11 basis points without gas deflation.
Core on core margins were higher by 22 basis points with broad-based increases across nonfoods, food and sundries, and fresh categories.
SG&A rate was 9.19%, higher or worse by 13 basis points year-over-year and higher by 8 basis points without gas deflation.
Traffic or shopping frequency increased 3.1% worldwide.
Average transaction or ticket was up 4.2% worldwide and 3.5% excluding gas price deflation and foreign exchange changes.
Membership fee income was $1.355 billion, an increase of $162 million or 13.6% year-over-year.
Tax rate in Q2 was 25.2% compared to 26.2% in Q2 2025.
Business Segment Results
Fresh comparable sales were up low-double digits in the quarter, led by meat and bakery.
Meat saw strong growth in both premium cuts of beef and lower-cost proteins such as ground beef and poultry.
Bakery continued success with new items like chocolate hazelnut mini beignets and seasonal pastries and cookies.
Non-food comparable sales were up high single digits in Q2, with top-performing departments including gold and jewelry, tires, majors, health and beauty, and small electrics.
Food and sundries comparable sales grew mid-single digits, led by candy and packaged foods.
Ancillary businesses including pharmacy and food court experienced double-digit comparable sales growth, while optical and hearing had high-single-digit growth.
Gas comparable sales were negative mid-single digits, driven by mid- to high-single-digit price deflation partially offset by gallon growth.
Pharmacy business grew at a faster pace than total sales with strong growth driven by digital enhancements and improved member experience.
February sales reached $21.69 billion, an increase of 9.5% from $19.81 billion last year.
Membership Results
Total paid members reached 82.1 million, up 4.8% versus last year.
Executive memberships reached 40.4 million, up 9.5% versus last year.
Total cardholders reached 147.2 million, up 4.7% year-over-year.
US and Canada renewal rate was 92.1%, down 10 basis points from last quarter.
Worldwide renewal rate was 89.7%, unchanged from last quarter.
Membership income growth of 7.5% year-over-year excluding the membership fee increase and foreign exchange impacts was driven by continued growth in membership base and upgrades to executive memberships.
Capital Allocation
Capital expenditure in Q2 was $1.29 billion.
Full-year CapEx estimate is approximately $6.5 billion to support building a larger pipeline of new warehouses, remodeling existing warehouses, expanding the depot network, and enhancing the member digital experience.
Regular dividend continues to be grown as a core fundamental part of demonstrating confidence in future company growth.
Share buybacks continue to avoid dilution from executive stock grants.
Special dividend consideration remains under board review, with management noting that to achieve a similar yield to the last special dividend when stock was at $660, cash balances would need to be greater.
Warehouse Expansion and Real Estate
Four warehouses were opened since the last earnings call, including one relocation in the US, one net new US location, and two additional Canadian business centers.
Total warehouse count reached 924 warehouses worldwide.
Expected net new openings for fiscal year 2026 are 28, with a target of 30 plus new openings per year in coming years.
Long-term expansion target of 30 warehouses per year is expected to be achievable over a 5 to 10 year time horizon, with roughly just over half in the US and just under half in the rest of the world.
Creative real estate strategies are being employed including parking decks and residential partnerships to enter markets like Los Angeles and New York that previously seemed inaccessible.
Canada has 114 buildings with high volume per location and expanded operating hours to help offset traffic increases.
Digital and Technology Initiatives
Site traffic in the quarter was up 32% and app traffic was up 45%.
Personalized product recommendation carousels drove over $470 million of e-commerce sales in Q2.
Mobile wallet enhancements, pharmacy pay ahead, and employee pre-scan technology are achieving meaningful improvements in checkout speed and employee productivity.
Automated pay stations are being piloted to allow members to pay for pre-scan orders seamlessly with an average transaction time of around 8 seconds.
Same-day delivery service through Instacart, Uber Eats, and DoorDash continued to grow at a faster pace than overall digital sales.
AI tools have been added to improve in-stock positions on pharmacy and digital enhancements have been made to speed up the pharmacy checkout experience.
Macroeconomic Environment and Tariffs
Tariff situation remains extremely fluid with recently eliminated IEEPA tariffs replaced with new global tariffs for at least the next 150 days.
Tariff management strategies include moving country of production, consolidating buying efforts globally, leaning on Kirkland Signature products, and sourcing more items domestically.
IEEPA tariff refunds process and timing remain unclear, with management committed to returning any refunds to members through lower prices and better values.
Price reductions were implemented on key items such as eggs, cheese, coffee, and paper products as lower inflation was observed in these commodities.
Additional price reductions were made on textiles, bedding, and cookware SKUs as some tariffs were reduced.
Overall inflation decreased slightly in Q2 with lower inflation in foods and sundries and fresh, led by deflation in produce, eggs, and dairy.
Non-foods inflation was slightly higher, partially reflecting tariff impacts.
Beef remains fairly inflationary while candy continues to see some commodity flow-through impacts.
Supply chain was relatively stable in Q2 with merchants feeling good about current inventory position heading into spring.
Middle East situation could impact fuel costs and shipping schedules if there is sustained instability in the region.
Gas prices are expected to potentially increase, which would strengthen Costco's value proposition as members seek better pricing.
Kirkland Signature and Merchandising
Kirkland Signature items typically offer 15% to 20% value compared to national brand alternatives with equal or better quality.
Approximately 30 new Kirkland Signature items were launched in Q2, including crispy wings, blackened salmon, and various apparel items.
Price reductions on Kirkland Signature products included butter from $13.89 to $8.49, organic coconut water from $12.79 to $10.99, organic seaweed from $10.99 to $9.99, and Italian extra virgin olive oil from $29.99 to $24.99.
Lunar New Year celebration showcased global buying expertise with new items driving growth across fresh, foods and sundries, and non-food categories.
Valentine's Day success included roses sold in the US that would have stretched from Seattle to New York City and back again.
Unique non-food items continue to drive member excitement, including a $150,000 emerald-cut 5.8-carat diamond ring, a $20,000 Babe Ruth autographed baseball, and nearly 200 luxury Whisper golf carts at an average price of approximately $9,000.
Competitive Landscape
Competitive warehouse openings by competitors do not meaningfully impact Costco's membership base or membership growth, as management focuses on being its own toughest competitor.
New warehouse openings by competitors do not create the same membership impact as Costco's own new market entries, but instead drive sales through increased frequency and visits.
China market is performing well with Costco confident it can compete with any operator in the country, following the company's customary measured growth approach used in other international markets.
Growth Opportunities and Strategies
Retail media and advertising represents a significant opportunity with over 1,000 suppliers participating in placement and promotional opportunities.
First priority for advertising is building capabilities to deliver more personalized, relevant communication to members, with early examples showing positive member response.
Digital TV and targeted marketing amplifications are being tested with suppliers as part of early learning stages for retail media expansion.
Marketplace opportunities focus on services and value offerings such as installation services for garden furniture, windows, and other items.
Costco Travel and additional member services are being expanded to deepen loyalty and grow these service offerings.
AI strategy focuses on making Costco better at who it is, improving member value delivery, and helping employees be more productive.
LLM and AI visibility is being prioritized to ensure Costco surfaces in all relevant searches and partnerships with confidence in the company's values and prices.
Financial Guidance and Outlook
No specific financial guidance was provided for future quarters or fiscal year beyond the CapEx estimate.
Comparable sales trajectory has been very consistent in the 6% to 7% range when stripping out noise around calendar shifts, port strikes, and tariffs.
Inflation outlook is expected to trend toward low-single digits, though the situation in the Middle East could impact this outlook.
Membership growth is expected to continue with opportunities through new benefits, existing warehouse maturation, improved renewal rates, and international market penetration of executive memberships.
Renewal rate trajectory is expected to stabilize after a few more quarters of slight decline as online members mature in the overall base.
Pharmacy business will experience a small impact from Medicare pricing changes, but nothing material to top-line sales results.
International expansion, particularly in Asia and Europe, is expected to show strong performance with good growth expansion opportunities from 2027 onward.
