Costco issues a lukewarm quarter, but delivers on the metric that matters most
Costco Wholesale reported a decent quarter Thursday evening, delivering just enough on the membership numbers that we identified as crucial ahead of the print. Total revenue in its fiscal 2026 third quarter increased 11.6% year over year to $70.53 billion, ahead of Wall Street expectations of $69.81 billion, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) in the 12 weeks ended May 10 rose 15.2% to $4.93, in line with expectations, LSEG data showed. Membership fee income in the quarter grew 10.7% to $1.37 billion, slightly exceeding the FactSet estimates of $1.36 billion. The U.S./Canada membership renewal rate ticked higher. COST YTD mountain Costco YTD The stock was not doing much after-hours trading. Weighing the lukewarm print against the benefits to Costco that come with a consumer forced to seek out value, we’re maintaining our hold-equivalent 2 rating and $1,100-per-share price target. Bottom line It was not the best quarter, but far from bad. Paid members came up short at 82.9 million but grew 4.1% year over year. However, stability in membership renewal rates should help support the stock, which has dropped some 9% since hitting a 52-week high of just over $1,096 on May 19. Traffic growth decelerated sequentially, but comparable ticket size growth accelerated as consumers continued to seek out the best-in-class value Costco can provide, thanks to its membership, bulk-selling warehouse model, and record demand at the gas pumps. That means folks are doing a bit more of their shopping at Costco these days. On the post-earnings call, CEO Ron Vachris called out record gas sales as prices hovered around four-year highs on supply disruptions due to the Iran war. “All three, four-week fiscal periods of the quarter set successive all-time company volume sales records, with the final five weeks of the quarter becoming our top five volume weeks ever,” the CEO said. The demand was so strong that some high-traffic Costco locations needed multiple daily gas deliveries. We were also pleased to hear Vachris say that many members were first-time Costco gas buyers in the quarter. He added, “We believe this will drive even greater loyalty with these members in the future, as members who use our gas stations typically spend more with us in the warehouse.” Motorists flock to Costco when prices are high because the company sells gas at a discount. After filling up, they’re more apt to duck their heads into the warehouse locations to do a little unplanned shopping. Total comparable sales rose 9.8% in fiscal Q3, a material acceleration from the 7.4% growth in the prior quarter. Comparable sales, or comps, is a key metric for the retail industry that adjusts for new store openings and closings to ensure fair year-over-year comparisons. Comps were driven by a 2.4% increase in traffic and a 7.3% increase in ticket size. That sounds pretty fantastic, but unfortunately, that’s not the full story. On an adjusted basis, which strips out the effects of foreign exchange and gasoline prices, comps growth decelerated slightly to 6.6%, and ticket size was only up 4.2%. Digitally-enabled comparable sales were up 21.5%, or 20.8% on an adjusted basis, as e-commerce site and app traffic increased 37% versus the prior year period. Gross margin contracted 17 basis points year over year to 11.02%. However, it was actually up 1 basis point when excluding the impact of gas prices. Operating margins improved from the year-ago period. While overall paid memberships missed, executive tier memberships, which cost $130 per year, versus the $65 basic tier, increased to 41.2 million, up 9.6% year over year, and up from 40.4 million in the prior quarter. The executive tier launched in China this quarter, with management noting strong early adoption. As for renewals, the worldwide membership renewal rate managed to hold steady at 89.7%. That said, we were pleased to see a slight increase in the U.S./Canada region renewal rate — back to 92.2%, the levels seen in the first fiscal quarter, before a small tick down to 92.1% in Q2. The renewal rate has come under pressure recently because of growth in online membership sign-ups. Members who sign up online tend to churn at a higher rate than those who sign up in the store. This remains the case, however, on the call, CFO Gary Millerchip said that efforts to increase renewal rates amongst the online cohort, via targeted digital communications and retention strategies, are proving effective enough to more than offset the impact of this change in membership mix. Finally, Costco opened four new warehouses in the quarter and plans to open 12 more in the final (current) quarter of its 2026 fiscal year. The planned total openings of 26 this year are down from the 28 that the team was targeting in the prior quarter. Two of those openings were pushed into fiscal year 2027. In the coming years, Costco will increase its openings to 30-plus per year, globally. Costco currently has 928 locations worldwide, most of which are in the U.S., Canada, and Mexico. In addition to North America, the company also has representation in Europe, Asia, and Australia. Why we own it Costco is the best-run retailer in the world, with a business model focused on offering its members a relatively small universe of products at hard-to-beat prices. It has succeeded for decades, but the high inflation of recent years has made the company’s value-focused ethos really shine. Competitors: BJ’s Wholesale , Walmart , fellow Club holding Amazon Last buy: Sept. 30, 2025 Initiation date: Jan. 27, 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.
<
