COST Q3 Earnings: Membership Strength Drives 11.6% Sales Growth, Gas Volumes Hit All-Time Records

wealthvista.top Editorial · May 29, 2026 · 8 min read

Executive Summary

Costco delivered a solid Q3 FY2026, with net sales climbing 11.6% to $69.2 billion and GAAP EPS of $4.93 landing essentially in line with the $4.93 consensus estimate. The headline number that stood out was revenue of $70.53 billion against a $69.81 billion expectation, a clean beat on the top line. Management cited record-breaking gasoline volumes driven by Middle East supply disruptions, continued membership fee growth, and 21.5% gains in digitally enabled comparable sales. The stock is not cheap at roughly 52x trailing earnings, but the membership-based model with its recurring fee revenue and high renewal rates continues to reward long-term holders.

1. Quarter Highlights vs. Expectations

Revenue Breakdown

Net Sales: $69.15 billion, up 11.6% from $62.0 billion in Q3 FY2025
Revenue (as reported to analysts): $70.53 billion vs. $69.81 billion estimate — BEAT
Comparable Sales: +9.8% (+6.6% adjusted for gas price inflation and foreign exchange)
Digitally Enabled Comparable Sales: +21.5% (+20.8% adjusted for FX)
Traffic (shopping frequency): +2.4% worldwide; average ticket up 7.3% (4.2% ex-gas and FX)
Membership Fee Income: $1.37 billion, up 10.7% year over year
Total Paid Members: 82.9 million, up 4.1%; total cardholders 149 million, up 4%
Executive Members: 41.2 million, up 9.6%

The revenue beat of roughly $720 million reflects broad-based strength across physical warehouses, digital channels, and ancillary businesses. Gasoline was a meaningful contributor — all three 4-week periods within the quarter set all-time volume records for the company, with the final five weeks becoming the top five highest-volume weeks in Costco history. This happened as Middle East supply disruptions pushed retail gas prices higher, attracting cost-conscious members who had never used Costco’s gas station before.

Margin Performance

Gross Margin: 11.04%, down 21 basis points from the year-ago quarter; excluding gas inflation, gross margin was up 1 basis point
Core Gross Margin: Decreased 9 basis points, driven by lower margins in fresh foods and sundries
SG&A Rate: 8.96%, a 20 basis point improvement; excluding gas inflation, improved 2 basis points

The gross margin compression was intentional — management chose to keep prices low for members rather than fully pass on cost increases. This is a pattern Costco has long embraced: act as a pass-through for member value, build loyalty, and let the membership fee model do the profit work. The SG&A leverage is the more important operational story here.

Sources: Q3 2026 Earnings Transcript — The Motley Fool · CNBC Earnings Coverage

2. Business Segment Analysis

Costco does not break down financials by segment in the same way as most retailers, but the earnings call and supplemental data give a clear picture of what drove the quarter.

Gasoline & Fuel: The biggest surprise this quarter. Record volumes across all three fiscal periods, an extraordinary outcome driven by macro uncertainty, rising pump prices, and members trading down from traditional gas stations. CEO Ron Vachris noted that first-time gas station users typically increase their warehouse spend over time, which makes this as much a customer acquisition play as a volume story.

Fresh Foods & Sundries: High single-digit comparable sales growth, with meat, bakery, self-care, and wellness cited as the top categories. Gross margin in fresh foods was under pressure, but the volume growth more than compensated.

Pharmacy: Growing in the mid-20% range for ancillary businesses, with management calling out significant market share gains and expanded GLP-1 prescription offerings.

E-commerce & Digital: Site and app traffic up 37% year over year, with digitally enabled comparable sales up 21.5%. Same-day delivery, averaging under 45 minutes in the US with a 4.8/5 member satisfaction rating, is outpacing the overall digital business in growth rate. AI-sourced ecommerce traffic tripled, though from a small base.

Kirkland Signature: Price reductions on multiple items — KS Crispy Wings ($16.99 to $14.99), KS Milk Chocolate Almonds ($19.99 to $18.99), KS golf balls ($32.99 to $29.99), KS king-size sheets ($89.99 to $79.99) — reflect management’s commitment to being “the first to lower prices and the last to raise them,” even as it pressured margins in the quarter.

3. Management Guidance vs. Street Expectations

Costco does not issue formal quarterly guidance in the traditional sense, but management provided a handful of forward-looking data points on the call:

Warehouse Openings: Full-year target revised to 26 net new openings, down 2 from prior guidance, with the shortfall pushed to FY2027. Long-term target remains 30+ net new warehouses per year.
Capital Expenditure: Approximately $6.5 billion for the full fiscal year, up meaningfully to support warehouse and digital expansion.
Section 301 Tariff Refunds: Management has begun submitting refund claims to US Customs and Border Protection, with refunds expected on a rolling basis over the next 2–3 months following legal and processing timelines. The planned return to members is contingent on amounts received and the outcome of related litigation.
International Expansion: Executive membership introduced in China is outperforming early expectations, providing a template for premium membership adoption in new markets.

No specific revenue or EPS guidance was provided for Q4 or the full year, which is typical for Costco.

4. Balance Sheet and Cash Flow Health

Based on available data and the company’s general financial profile:

Cash Position: Costco ended Q3 with cash and short-term investments typically ranging between $8–10 billion given its large cash-generative model.
Free Cash Flow: For the first 36 weeks of fiscal 2026, net sales of $203.4 billion and net income of $6.23 billion ($14.01 per diluted share) reflect strong FCF conversion. Q3 CapEx of $1.41 billion was elevated relative to the prior-year quarter as the company invests in warehouse expansion and digital infrastructure.
Debt: Costco carries long-term debt typically in the $7–10 billion range, which is manageable given its recurring revenue model and consistent cash generation.
Capital Allocation: Management flagged growth investments as the top priority, with special dividends considered when excess cash builds. No specific buyback announcements were made for the quarter.

A warehouse retail model that collects roughly $1.4 billion in membership fees quarterly is one of the most defensible economic moats in retail. The fees are essentially pure profit at minimal CAC, and renewal rates in the US and Canada at 92.2% speak for themselves.

5. Valuation Assessment

Costco trades at a significant premium to the broader retail sector:

P/E (TTM): Approximately 52–53x, based on trailing EPS of roughly $14.01 for the first 36 weeks annualized and the current stock price in the $1,000–$1,050 range.
Forward P/E: Analysts typically project FY2026 EPS in the $15.50–$16.00 range, implying a forward multiple in the 62–68x range, expensive by any conventional measure.
P/S: Roughly 3.5–4x revenue, elevated relative to peers but justified by Costco’s subscription-like revenue base and industry-leading inventory turns.
EV/EBITDA: Given EBITDA margins in the 4–5% range for operations, the EV/EBITDA multiple is substantial.

Is it expensive? Yes, by conventional metrics. But the valuation is supported by a near-zero customer acquisition cost model, industry-leading same-store sales per square foot, and a management team with a decades-long track record of staying true to its member-first pricing philosophy.

6. Competitive Positioning and Catalysts

Costco remains the dominant force in membership warehouse retail. Its closest competitors — Sam’s Club (WMT) and BJ’s Wholesale — compete on price and membership value, but Costco’s scale ($203 billion in net sales over 36 weeks), 928 warehouse locations globally, and 149 million cardholders create a structural advantage that is difficult to replicate.

Key differentiators include Kirkland Signature, now one of the largest consumer brands in the world by volume; Costco’s retail media business, which contributed nearly $5 billion in ecommerce sales this quarter alone; and pharmacy, where significant share gains in GLP-1 medications create a durable growth driver outside of core merchandise.

Near-term catalysts worth watching: tariff refund processing over the next 2–3 months could lead to a price-reduction announcement that re-energizes member sentiment. China executive membership rollout exceeding expectations opens a new high-income demographic. Same-day delivery recently launched in Spain and France positions Costco to capture share in the quick-commerce channel. AI-driven search is still early but showing triple-digit traffic growth and the highest conversion rate of any traffic source.

7. Key Risks

Gross Margin Pressure from Pricing Strategy: Management’s commitment to keeping prices low is a feature of the model, not a bug, but it creates ongoing margin vulnerability. Q3 gross margin ticked down 21 basis points, and management flagged higher transportation costs and upcoming inflation in non-food categories as persistent headwinds.

Membership Growth Deceleration: Total paid members grew 4.1%, which management described as a “more normal rate” without new market entries. The law of large numbers is slowing the membership flywheel. If renewal rates slip or executive upgradation plateaus, the membership fee growth story becomes harder to sustain at current rates.

Tariff Refund Timing and Legal Uncertainty: The refunds are a genuine cash benefit, but management has pre-committed to passing them back to members in some form. The legal complexity and processing timeline create uncertainty about both the magnitude and timing of any member return.

8. Investment Conclusion

HOLD — Premium Valuation Limits Near-Term Upside

Costco is a best-in-class operator in a category of one. The Q3 results confirm the membership model continues to fire on all cylinders: record gas volumes, accelerating digital engagement, strong membership renewal rates, and expanding ancillary businesses. The EPS beat was razor-thin, but the top-line revenue beat and 15% EPS growth rate are both respectable outcomes.

The case for owning Costco at $1,000+ per share is long-term and quality-focused. Near-term upside is limited by a trailing P/E in the 52–53x range and a forward P/E that stretches into the 60s. The tariff refund situation is a positive catalyst to watch over the next 2–3 months, and the international expansion story, particularly in China, adds a genuine growth lever that was not priced in a year ago.

Buy if the stock pulls back meaningfully on macro weakness or tariff uncertainty. Hold at current levels given the rich multiple and wait for a better entry point.

COST earnings warehouse retail membership EPS in-line guidance retail