Costco Wholesale Corp Earnings - Q1 2026 Analysis & Highlights
Costco Wholesale Corporation reported strong Q3 2026 results driven by record gas volumes and robust comparable sales growth, with management emphasizing value delivery to members amid macroeconomic uncertainty, while discussing strategic investments in digital capabilities, warehouse expansion, and international growth opportunities.
Key Financial Results
Net income reached $2.192 billion, or $4.93 per diluted share, up 15% from $1.903 billion, or $4.28 per diluted share in the prior year.
Net sales for Q3 were $69.15 billion, an increase of 11.6% from $61.96 billion in Q3 2025.
Comparable sales were up 9.8% and 6.6% adjusted for gas price inflation and foreign exchange.
Comparable sales excluding gas and adjusted for foreign exchange were also up 6.6%.
Digitally enabled comparable sales were up 21.5% and 20.8% adjusting for foreign exchange.
Gross margin rate was 11.04% compared to 11.25% last year, lower by 21 basis points.
Gross margin excluding gas inflation was higher by 1 basis point.
SG&A rate was 8.96% compared to 9.16% last year, lower or better by 20 basis points.
Traffic or shopping frequency increased 2.4% worldwide.
Average transaction or ticket was up 7.3% worldwide and 4.2% excluding gas price inflation and changes in foreign exchange.
Capital expenditure in Q3 was $1.41 billion.
Business Segment Results
Membership fee income was $1.373 billion, an increase of $133 million or 10.7% year-over-year.
Paid Executive memberships reached 41.2 million, up 9.6% versus last year.
Total paid members ended at 82.9 million, up 4.1% versus last year.
Total cardholders reached 148.5 million, up 4% year-over-year.
US and Canada renewal rate was 92.2%, up 10 basis points from last quarter.
Worldwide renewal rate came in at 89.7%, unchanged from last quarter.
Fresh comparable sales were up high-single-digits, led by meat and bakery.
Nonfoods comparable sales were up high-single-digits in Q3, with top-performing departments including gold and jewelry, small electrics, tires, home furnishings, majors, and health and beauty.
Food and sundries comparable sales grew mid-single-digits, led by packaged foods and candy.
Ancillary businesses comparable sales were up mid-20s.
Pharmacy led ancillary growth and saw significant market share gains in the quarter.
Gas comparable sales were positive high-20s, driven by price per gallon increase year-over-year and acceleration in volumes.
Capital Allocation
Full-year CapEx estimate is approximately $6.5 billion, focused on building a larger pipeline of new warehouses, remodeling existing warehouses, expanding the depot network, and enhancing the member digital experience.
Regular dividend continues to grow over time.
Share repurchases are conducted at a level that avoids dilution from executive stock grants issued each year.
Special dividend is considered the most effective way to return excess cash without giving up flexibility to keep investing in growth.
Cash balances continue to grow, with management evaluating appropriate timing and approach for capital returns.
Industry Trends and Dynamics
Gas business experienced record-breaking volumes with all three four-week fiscal periods of the quarter setting successive all-time company volume sales records.
Final five weeks of the quarter became the company's top five volume weeks ever.
High consumer price sensitivity fueled record gas volumes and drove many members to use gas stations for the first time in Q3.
Members engaging with gas generally visit more frequently, shop more, buy more, and renew at higher rates.
GLP-1 demand is increasing, with inclusion of Wegovy and Ozempic in the member prescription program contributing to pharmacy growth.
Protein-based products are performing extremely well, with protein snacks, protein bars, and beef sticks seeing strong growth.
Self-care and wellness items performed extremely well during the quarter, including fragrances and hair and skin products.
Saunas and massage chairs experienced almost 50% sales growth during the quarter.
Competitive Landscape
Management views itself as its toughest competitor, with the majority of price investments made to ensure great value for members.
The competitive market is viewed as very rational currently.
Costco aims to maintain pricing authority and be there for members.
The company's goal is to be the first to lower prices and the last to raise them.
Kirkland Signature offerings provide savings of at least 15% to 20% to national brand equivalents with equal or better quality.
Macroeconomic Environment
Macro uncertainty persists, but the company's focus on providing quality goods and services at the lowest possible price continues to resonate strongly with members.
Middle East events have had a significant impact on product supply and gas prices.
Higher oil prices are creating longer-term inflationary impacts that the company is closely monitoring.
Tariffs are a concern, with the company starting to submit refund claims for IEEPA tariffs through the U.S. Customs and Border Protection process.
Tariff refunds are expected to arrive on a rolling basis over the following two to three months based on what other claimants have experienced.
Overall inflation increased slightly in Q3, largely because of higher gas prices.
Food and sundries inflation decreased, primarily due to deflation in produce, eggs, and dairy.
Nonfoods inflation increased slightly, with anticipation of further inflation as higher resin costs flow into cost of goods.
Supply chain is generally stable, with merchants feeling good about inventory position heading into summer.
Inventory exposure to shipping issues from the Middle East situation is relatively low, but the company continues to monitor closely.
Growth Opportunities and Strategies
Warehouse expansion targets 30-plus net new openings per year in the coming years.
Net new warehouse openings in Q3 totaled four, including three in the US and one additional Canadian business center, bringing total warehouse count to 928 worldwide.
Expected net new openings for fiscal year 2026 are 26, down two buildings from the prior call with those two buildings now set to open in fiscal year 2027.
Warehouse relocations are being completed to larger locations with more parking and expanded gas stations to provide better member experience and drive more volumes.
Digital investments are delivering a more seamless and convenient experience for members across the warehouse and online.
Mobile wallet improvements, digital membership card quick access on the Costco app, and shopping cart pre-scan tool rollout internationally are enhancing the checkout experience.
Pay station pilot has been successful and is now being incorporated into new warehouse openings and high-volume buildings.
Same-day delivery services have been rolled out in Spain and France, with average delivery time in the US now less than 45 minutes and average member satisfaction rating of 4.8 out of 5.
Same-day delivery is growing at an even faster rate than the digital business overall and is a strong driver of loyalty.
AI integration is being leveraged to improve visibility of Costco's values to current and potential future members.
AI search traffic showed triple-digit growth in Q3 with the highest conversion rate of all traffic coming to the site.
Personalized product recommendation carousels delivered conversion rates three times better than typical conversion rates and contributed just under $0.5 billion of e-commerce sales.
Retail media partnership with Google Commerce Media and YouTube was launched in Q3 to increase share of retail media revenue.
Executive member program was launched in China with strong early adoption in the market.
International expansion opportunities remain strong in China, Korea, Japan, Taiwan, France, Spain, and the UK.
Canada has upside potential with the next three to five years charted out for consistent strong growth.
Kirkland Signature innovation continues with new product launches including KS Energy Drink, KS Ultra Filtered Milk, KS Sea Salt Popcorn, and KS Oven Roasted Chicken Dog Food.
Price reductions on select items include KS Crispy Wings from $16.99 to $14.99, KS Milk Chocolate Almonds from $19.99 to $18.99, KS Golf Balls from $32.99 to $29.99, and KS King Size Sheets from $89.99 to $79.99.
Financial Guidance and Outlook
The company does not provide guidance on future trends.
Management expects to continue to grow market share as it delivers great value for members and continues to provide great quality items.
Comparable sales are expected to continue in the 6% to 7% range excluding gas, based on recent performance trends.
Membership growth of 4% to 5% is considered a more normal rate when not benefiting from special events like COVID or new market entry.
Tariff refund returns to members will depend on the amount of refund money received, when it arrives, and developments in the lawsuit filed against the company regarding the return process.
Inflation outlook anticipates further inflation in nonfood categories as higher resin costs start to flow into cost of goods.
