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Costco Earnings: Strong Traffic, Membership Momentum, and Digital Acceleration Fuel Q1 Beat

  • Writer: Hardik Shah
    Hardik Shah
  • 4 days ago
  • 5 min read
A wide-angle, slightly cinematic shot of a bustling Costco warehouse exterior at sunset with people pushing carts, cars lining up, and clear Costco signage.

TLDR

Revenue Strength: Total revenue rose 8.2% to $67.3B, driven by 6.4% comparable sales and strong traffic.

Margin Trends: Gross margin improved 4 bps; SG&A deleveraged slightly by 1 bp, steady even excluding gas.

Forward Outlook: Membership income grew 14%, digital sales surged 20.5%, and new warehouses position Costco for continued global expansion.


Business Overview


Costco Wholesale Corporation is one of the world’s leading warehouse retailers, operating 923 locations globally across the U.S., Canada, Mexico, Asia, Australia, and Europe. Its core model centers on:

  • Membership-driven recurring revenue supported by high renewal rates (89.7% worldwide; 92.2% in U.S./Canada).

  • A tightly curated merchandise mix emphasizing value, bulk formats, and Costco’s highly penetrated Kirkland Signature private label.

  • A multi-channel footprint spanning warehouse retail and fast-growing digitally enabled commerce, now contributing meaningfully to traffic and ticket growth.

  • Strength in both core consumables and discretionary categories, alongside ancillary businesses such as pharmacy, optical, hearing aids, gas, and Costco Travel.


Costco’s operations are supported by a global logistics and real estate development engine, with plans to reach an estimated 942 warehouses by the end of FY26.


Costco Earnings


Revenue Performance

Costco reported Q1 FY26 net sales of $65.98B, an 8.2% increase from the prior year. Total revenue including membership fees reached $67.31B, up from $62.15B.

Comparable sales increased 6.4%, evenly matched on an adjusted basis excluding gasoline and foreign exchange impacts. Growth was broad-based:

  • U.S.: +5.9%

  • Canada: +6.5% reported / +9.0% adjusted

  • Other International: +8.8% reported / +6.8% adjusted

  • Digitally Enabled Sales: +20.5% (reported and adjusted)


Traffic remained a standout, rising 3.1% globally and 3.1% on an adjusted basis. Ticket improved 3.2%, showing inflation stabilization yet healthy member demand.


Margins

Gross margin increased 4 bps year-over-year to 11.32%, supported by ancillary businesses, strong private-label performance, and operational efficiency. Core on-core merchandise contribution improved +30 bps.SG&A was 9.60%, up 1 bp, with pressures from wage investments offset by leverage in central operations and equity compensation.


Profitability

  • Net income: $2.00B (vs. $1.80B prior year)

  • Diluted EPS: $4.50 (vs. $4.04), +11.4%

  • Growth excluding tax-related benefits: +13.6% for both net income and EPS


Costco continues to exhibit best-in-class volume-driven operational execution that converts incremental traffic and ticket into earnings expansion even amid wage, transportation, and commodity cost variability.


Forward Guidance


The company did not issue specific quantitative guidance in the supplied documents, but its forward-looking statements and underlying trends highlight a clear directional outlook.


Management Outlook Signals

  • Sustained strength in traffic and membership recruitment

  • A deliberate push to improve digital conversion and relevance

  • Strategic price investments to reinforce value perception (e.g., reductions in everyday prices across key Kirkland Signature items)

  • A robust warehouse expansion schedule across core and emerging markets


Risks & Opportunities


Risks

  • Inflation/deflation swings impacting ticket and merchandising margins

  • FX volatility, particularly in Canada and Asia

  • Global cost pressures—from wages to energy to transportation

  • Competitive pricing intensity across club, mass, and grocery channels

Opportunities

  • Growing digital penetration with measurable improvements in site traffic (+24%) and average order value (+13%)

  • Private label expansion (Kirkland Signature) reinforcing Costco’s value moat

  • International visibility, with Japan, Mexico, China, and Europe outperforming in traffic and comps

  • Massive headroom for membership monetization, buoyed by 74.3% executive membership penetration of sales


Operational Performance


Costco delivered another quarter of disciplined operational execution, supported by:

  • Warehouse expansion: 7 new openings in Q1 (4 U.S., 2 Canada, 1 International), with 21 more expected for the remainder of FY26.

  • Inventory management: Inventories rose to $21.1B from $18.1B to support sales growth and new warehouse openings.

  • Cash flow strength: Operating cash flow surged to $4.69B, driven by earnings growth and favorable working capital timing.

  • Digital improvements: Better personalization, search, and product page experience led to higher conversion rates.


Segment Snapshot

  • U.S.: Steady comps (+5.9%) supported by strong consumables, pharmacy, and traffic gains.

  • Canada: A standout market with 9.0% adjusted comp growth, driven by stronger ticket and traffic.

  • Other International: Momentum in Japan and Europe drove 8.8% reported comp growth.


Market Insights


Costco continues to outperform the broader retail sector on both price perception and traffic share gains. Key dynamics include:

  • Value-seeking behavior remains elevated as consumers manage household budgets amid mixed macro signals.

  • Private label strength—Kirkland Signature remains a critical edge, seen again this quarter through targeted price reductions (e.g., bacon, walnuts, pot pie).

  • E-commerce acceleration underscores Costco’s ability to expand its relevance in higher-ticket discretionary categories such as jewelry, major appliances, and small electrics.

  • Ancillary services (pharmacy, travel, optical) provide insulation from discretionary softness by offering everyday essential value.


Consumer Behavior & Sentiment


The quarter’s data reveals a consumer that is:

  • Trading toward value, but not trading down within Costco—the ticket growth and category mix reflect continued appetite for discretionary categories.

  • Digitally engaged, with stronger adoption of the mobile app and personalized browsing features.

  • Highly loyal, with renewal rates near record highs and executive membership growing 5% year-over-year.


Costco’s price investments (highlighted explicitly in the deck) demonstrate the company’s commitment to reinforcing its price moat even during moderating inflation.


Strategic Initiatives


Digital Transformation

Costco is increasingly positioning digital as a complement to its club model, not a replacement. Initiatives this quarter included:

  • Personalized recommendations

  • Improved product display pages

  • Enhanced search capability


Merchandising & Value Engineering

The company showcased its ongoing commitment to everyday value, reducing prices on staples while introducing new Kirkland Signature offerings.


Global Expansion

Warehouse growth remains a core strategic lever, with aggressive expansion plans across North America and international markets into FY26.


Capital Allocation


  • Dividends: Costco paid $577M in dividends during the quarter.

  • Share repurchases: The company repurchased $210M of stock.

  • Cash position: Cash and cash equivalents increased to $16.2B, up from $14.16B at year-end.

  • Leverage: Long-term debt decreased slightly to $5.67B.


Costco’s balance sheet remains a strategic asset, enabling disciplined expansion, opportunistic buybacks, and consistent dividend returns.


The Bottom Line


Costco delivered another resilient quarter characterized by traffic growth, digital acceleration, membership monetization, and disciplined margin management.


Looking ahead, investors should watch:

  1. Membership Income Trajectory: With 14% growth this quarter, renewals and executive penetration remain Costco's most powerful earnings drivers.

  2. Digital Productivity: Sustained gains in traffic and conversion could unlock new profit pools.

  3. International Strength: Markets like Canada and Japan are outgrowing the U.S. and could meaningfully shift Costco’s revenue mix.


Costco continues to justify its premium valuation through consistent execution, predictable cash flow generation, and a formidable competitive moat rooted in value and trust.


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