Costco Q3 2026 Earnings: Core Sales Hold Up as Gas Lifts Headline Growth

Costco reported a strong fiscal third quarter, with net sales up 11.6% and diluted EPS up 15%, helped by higher gasoline prices and record fuel volumes. The more important underlying result was a 6.6% comparable-sales increase excluding gasoline and foreign exchange, showing that core demand remained healthy despite macro uncertainty.

The quarter also highlighted Costco’s willingness to reinvest in price. Management lowered prices on selected everyday items and widened its gasoline price gap, contributing to modest pressure on core merchandise margins but supporting member value and traffic. Membership trends remain solid, particularly among Executive members, although total paid-member growth has normalized to 4.1%.

As Reported on the Call

The Bigger Story

The headline sales growth was amplified by gasoline, which added approximately 2.2 percentage points to comparable sales as higher fuel prices and record volumes pushed more spending through Costco’s stations. But the 6.6% comparable-sales increase excluding gasoline and foreign exchange remains the more relevant measure of underlying merchandise momentum.

That core growth came despite several factors that had supported prior-year comparisons beginning to fade, including gift card programs and gold sales. Management said core comparable sales have remained in the 6% to 7% range over the past year, suggesting that Costco’s value proposition continues to support spending even as membership growth moderates.

The trade-off is margin. Costco used favorable year-over-year LIFO comparisons and its pricing authority to reduce prices on products including eggs, beef and select Kirkland Signature items. That decision weighed on core merchandise margin, but management framed it as a deliberate investment in member value rather than a reaction to deteriorating competition.

Revenue and Operating Performance

Net sales increased 11.6% to $69.15B in the 12 weeks ended May 10. Comparable sales rose 9.8%, including roughly 1 percentage point of benefit from foreign exchange and 2.2 percentage points from gasoline-price inflation.

Traffic increased 2.4% worldwide, while average ticket increased 7.3%, or 4.2% excluding gasoline-price inflation and foreign exchange. Management attributed ticket growth to a combination of larger baskets, some inflation and customers purchasing larger or higher-value items. Costco did not quantify the contribution from each factor.

Gasoline was the standout contributor to reported growth. All three four-week fiscal periods set company volume records, while the final five weeks of the quarter were Costco’s five highest-volume fuel weeks. Management said members were particularly price-sensitive amid higher fuel costs, and Costco widened its gasoline price gap to reinforce its value proposition.

Outside gasoline, fresh and nonfood comparable sales increased by high single digits, while food and sundries grew by mid-single digits. Fresh performance was led by meat and bakery. Costco reported strength in both premium beef cuts and lower-cost proteins such as ground beef and poultry, indicating that customers continued to buy across price points where Costco’s value was compelling.

Nonfood strength was broad-based, with gold and jewelry, small electrics, tires, home furnishings, major appliances, and health and beauty among the stronger categories. Sales of saunas and massage chairs increased by almost 50%, reflecting demand for higher-value discretionary purchases. However, management also indicated that its merchandise assortment is increasingly balancing everyday-value purchases with selective “treat” categories.

Ancillary business comparable sales rose in the mid-20% range, led by pharmacy. Pharmacy benefited from GLP-1 prescription demand, the inclusion of Wegovy and Ozempic in Costco’s member prescription program, pet medication, Medicare Part D over-the-counter flex cards, and expanded mail-order and specialty pharmacy offerings.

Digital comparable sales increased 21.5%, while site and app traffic rose 37%. Management said personalized recommendation carousels produced conversion rates roughly three times Costco’s typical rate and contributed just under $0.5B in e-commerce sales. The company also reported triple-digit growth in traffic generated from AI search, though it emphasized that the absolute volume remains low.

Profitability and Margins

Net income rose to $2.192B, or $4.93 per diluted share, from $1.903B, or $4.28 per share, a year earlier. Earnings benefited from higher sales, lower interest expense, higher interest income due to larger cash balances, a favorable change in FX and other income, and a lower effective tax rate.

Reported gross margin fell 21 basis points to 11.04%. Excluding gasoline inflation, however, gross margin improved by 1 basis point. The difference reflects a sales mix shift toward gasoline, e-commerce and pharmacy, which grew faster than core merchandise.

Core margin was down 46 basis points, or down 29 basis points excluding gas inflation. On a core-on-core basis, gross margin declined 9 basis points. Management attributed that decline primarily to lower margins in fresh and food and sundries as Costco reduced prices on everyday items, particularly eggs and beef, while higher transportation costs also created pressure.

The gross-margin comparison also benefited from lower LIFO expense. Costco recorded a $44M LIFO charge in the quarter, compared with a $130M charge a year earlier. Lapping a prior-year catch-up accrual related to higher employee vacation days also added 2 basis points to gross margin and 5 basis points to SG&A performance.

SG&A improved 20 basis points year over year to 8.96% of sales. Excluding gasoline inflation, SG&A improved by 2 basis points. Underlying operating productivity improved, but higher health care costs offset some of that benefit. Management also cited legal settlements and reserves in central expenses as unusual pressures during the quarter.

The broader profitability message is that Costco preserved its overall gross-margin rate despite price investments, but its ability to maintain operating leverage will depend on whether health care, freight and other cost pressures remain manageable.

Demand, Customers and Pricing

Membership fee income increased 10.7% to $1.373B. Excluding foreign exchange and the September 2024 U.S. and Canada membership-fee increase, membership income rose 7%, supported by member growth and upgrades to Executive Membership.

Executive memberships increased 9.6% to 41.2M, materially faster than the 4.1% increase in total paid members to 82.9M. Management said the higher-tier membership is gaining through both upgrades from Gold Star memberships and a higher share of new members choosing the Executive tier. The company also launched Executive Membership in China during the quarter, where management said adoption has exceeded its initial expectations.

Renewal trends were stable to improving. The U.S. and Canada renewal rate increased 10 basis points sequentially to 92.2%, while the worldwide rate remained at 89.7%. Costco said digital sign-ups tend to renew at a lower rate than warehouse sign-ups, but targeted digital communication and retention efforts more than offset this mix pressure during the quarter.

Paid-member growth has slowed from stronger prior periods, which management attributed partly to the absence of new entries into major international markets. Management characterized 4% to 5% growth as a more normal rate without a major market opening or unusual event.

On pricing, management said it views the current retail environment as rational and continues to treat its own value proposition as its main competitive benchmark. Costco lowered prices on several Kirkland Signature products during the quarter, including crispy wings, milk chocolate almonds, golf balls and king-size sheets. It also said it expects potential cost pressure in nonfood categories with plastic, polyester or cotton exposure if oil and resin costs remain elevated.

What is Costco Wholesale’s guidance and outlook?

Costco does not provide formal sales or earnings guidance. Management said core consumer behavior remains broadly consistent, with members continuing to spend where they see quality, value and product newness.

The company expects 26 net warehouse openings in fiscal 2026, down two from its prior expectation because two buildings are now scheduled for fiscal 2027. Costco continues to target more than 30 net openings annually in coming years, supported by domestic and international expansion.

Management identified China, Korea, Japan, Spain, the U.K. and Canada as important long-term international growth markets. It also expects to continue relocating selected high-volume warehouses to larger sites with more parking and expanded gasoline capacity.

Costco has begun filing claims for refunds of IEEPA tariffs through U.S. Customs and Border Protection. Management expects approved refunds could begin arriving on a rolling basis two to three months after submissions, though timing and amounts remain uncertain. The company said it intends to return to members, in some form, the portion of tariffs that had been passed through, subject to refund proceeds and ongoing litigation involving the return process.

Balance Sheet, Cash Flow and Capital

Capital expenditure was $1.41B in the third quarter, and management expects approximately $6.5B of CapEx for fiscal 2026. Spending is focused on new warehouses, relocations and remodels, depot-network expansion, digital capabilities, and selected manufacturing capacity supporting Kirkland Signature products.

Management said Costco’s capital-allocation priorities remain investment in growth, regular dividend increases over time and share repurchases sufficient to offset dilution from employee stock grants. The company continues to generate excess cash and said a special dividend remains its preferred mechanism for returning surplus capital when appropriate, but it provided no timetable or plan.

Costco also reported $130M of interest income, up from $95M a year earlier, reflecting higher cash balances. Interest expense declined to $32M from $35M.

What Investors Should Watch

1. Core Comparable Sales Excluding Gas

The 6.6% core comparable-sales gain was the key evidence of underlying demand health. Investors should watch whether Costco can sustain mid-single-digit or better core growth as it laps prior promotional and category-specific tailwinds.

2. Membership Growth and Executive Mix

Paid membership grew 4.1%, while Executive memberships increased 9.6%. Continued Executive-member growth could support higher spending and membership-fee income, but a further slowdown in total new-member additions would narrow one source of future sales growth.

3. Margin Discipline Versus Value Investments

Costco protected its total gross margin excluding gas inflation, but core margin declined as the company invested in pricing. Investors should monitor whether those investments remain selective and whether health care, freight and potential tariff-related costs limit SG&A or gross-margin leverage.

4. Gasoline Engagement and Traffic

Record fuel volumes enhanced sales and may strengthen long-term loyalty, but gasoline pricing is volatile and gas-station traffic is not included in Costco’s reported warehouse traffic metric. The important test is whether new gasoline users ultimately increase warehouse visits, spending and renewal rates.

5. Store Expansion and Capital Spending

Costco’s fiscal 2026 opening plan was reduced to 26 net new warehouses, while annual CapEx is expected to reach approximately $6.5B. Execution on new warehouses, relocations and capacity expansions will be important to relieving pressure in high-volume locations and sustaining long-term unit growth.

AlgovestIQ Takeaway

Costco delivered a strong quarter, but the investment case rests less on the 11.6% reported sales increase than on the durability of its 6.6% core comparable-sales growth. Fuel inflation and record gasoline volumes boosted the headline result, yet underlying merchandise demand remained healthy across fresh, nonfood, pharmacy and digital channels.

The company’s pricing posture is also notable. Costco accepted modest pressure on core merchandise margin to reduce prices on everyday products and maintain strong fuel value. This is consistent with its long-standing model, but it means investors should not assume all current sales growth will translate directly into margin expansion.

Membership quality improved through faster Executive-member growth and stable renewal rates. However, total paid-member growth has normalized, and management’s explanation that it lacks a recent major new-market opening is reasonable but also underscores the importance of future international expansion and warehouse openings.

Digital initiatives are becoming more economically relevant. Personalized recommendations contributed just under $0.5B of e-commerce sales, while same-day delivery and AI-search traffic offer potential incremental engagement. Still, these programs are developing, and management did not quantify their profit contribution.

The central question is whether Costco can sustain core sales growth while continuing to invest in prices, capacity and technology without losing operating leverage. Evidence of stable gross margin excluding gasoline, improved SG&A productivity, continued Executive-member penetration and successful warehouse expansion would strengthen that case. A sharper slowdown in memberships, persistent health care and freight costs, or a more meaningful compression in core merchandise margin would weaken it.