Costco is posting a lukewarm quarter, but it’s delivering a very important metric
Costco Wholesale reported a decent quarter Thursday evening, delivering enough of the membership numbers we identified as important prior to publication. Total revenue for the fiscal third quarter of 2026 rose 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) for the 12 weeks ended May 10 rose 15.2% to $4.93, in line with expectations, LSEG data showed. Membership fee revenue for the quarter grew 10.7% to $1.37 billion, slightly beating FactSet estimates of $1.36 billion. The US/Canada membership renewal rate has reached its peak. COST YTD mountain Costco YTD The stock was not doing much in after-hours trading. Weighing the tepid print against Costco’s benefits that come with a compelling consumer demand for value, we maintain our equivalent Hold rating of 2 and a price target of $1,100 per share. Bottom line It wasn’t the best quarter, but far from bad. Paid members reached 82.9 million but grew by 4.1% year-on-year. However, stability in membership renewal rates should help support the stock, which has fallen 9% since hitting a 52-week high of just over $1,096 on May 19. Traffic growth slowed sequentially, but relative ticket size growth accelerated as shoppers continued to seek the best-in-class value Costco’s memberships can offer thanks to its record, warehouse model and pumps. That means people are making more of their purchases at Costco these days. In a post-earnings call, CEO Ron Vachris called record gas sales as prices rose for nearly four years due to supply disruptions due to the Iran war. “Every three-week fiscal period of the quarter set consecutive company price records, and the last five weeks of the quarter were our best five weeks ever,” the CEO said. Demand has been so strong that some high-traffic Costco locations require multiple gas deliveries every day. We were also happy to hear Vachris say that many members were buying Costco gas for the first time this quarter. He added, “We believe this will inspire even greater loyalty from these members in the future, as members who use our gas stations often spend more money 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 than ready to pop their heads into the warehouse for random purchases. Comparable net sales rose 9.8% in fiscal Q3, a significant acceleration from 7.4% growth in the previous 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 great, but unfortunately, that’s not the full story. On an adjusted basis, which removes the effects of foreign exchange and fuel prices, comps growth slowed to 6.6%, and ticket size increased just 4.2%. Comparable digital-enabled sales were up 21.5%, or 20.8% on an adjusted basis, as e-commerce site and app traffic increased 37% compared to the prior period. The contract’s gross margin was 17 basis points year-on-year to 11.02%. However, it was actually 1 basis point when we excluded the impact of gas prices. Operating margins improved from the prior year period. While paid memberships lost, memberships in the top tier, which cost $130 a year, compared to the basic tier at $65, rose to 41.2 million, up 9.6% year over year, from 40.4 million in the previous quarter. The top tier launched in China this quarter, with management seeing strong early adoption. In terms of renewals, the global membership renewal rate has managed to hold at 89.7%. That said, we were pleased to see a slight increase in the US/Canada regional renewal rate – back to 92.2%, levels seen in the first fiscal quarter, before slipping slightly to 92.1% in Q2. The renewal rate has been under pressure recently due to the growth of online membership registrations. Members who sign up online tend to sign up at a higher rate than those who sign up in store. This remains the case, however, on the phone, CFO Gary Millerchip said that efforts to increase renewal rates among the online group, using targeted digital communication strategies and retention strategies, seem to be effective enough to exceed the impact of this change on the membership mix. Finally, Costco opened four new warehouses in the quarter and plans to open 12 more in the last (current) quarter of its 2026 fiscal year. The planned total of 26 openings this year is down from the 28 the team targeted last quarter. Two of those vacancies have been carried over to the 2027 fiscal year. In the coming years, Costco will increase its opening to 30-plus per year, around the world. Costco currently has 928 locations worldwide, most of which are in the US, 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 world’s best-run retailer, with a business model focused on offering its members a small universe of products at prices that are hard to beat. It’s been successful for decades, but high inflation in recent years has made the company’s value-focused ethos really shine. Competitors: BJ’s Wholesale , Walmart , partner Amazon Owners Club Last purchase: Sept. 30, 2025 Start date: Jan. 27, 2020 (Jim Cramer’s Charitable Trust is long COST. See here for a full list of stocks.) 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