Costco (COST.US) reported better-than-expected fiscal 2026 first-quarter results. The company posted revenue of $67.31 billion, up 6.4% year-over-year (YoY), surpassing market expectations of $67.14 billion. Net sales rose 8.2% to $65.98 billion, while membership fees increased 14.0% to $1.33 billion. Net income climbed 11.3% to $2.00 billion, with diluted earnings per share (EPS) at $4.50, beating estimates of $4.27. Comparable store sales grew 6.4%, exceeding forecasts, with U.S. comps up 5.9% and e-commerce sales surging 20.5%.
The strong performance reflects Costco’s sustained sales momentum, driven by rotating promotions, bulk packaging, and its popular Kirkland Signature brand. Despite inflation and labor market challenges, many U.S. consumers maintained stable spending habits this year. Costco’s affluent, membership-based customer base has historically been more resilient to economic fluctuations.
CFO Gary Millerchip noted that fall holiday sales contributed significantly—the U.S. food court set a single-day sales record on Halloween, selling 358,000 whole pizzas, while 4.5 million pies were sold in the three days before Thanksgiving weekend. E-commerce, which skews toward discretionary items, also performed well during the gift-buying season, with Black Friday setting a record. Categories like gold, jewelry, small electronics, and apparel posted double-digit YoY sales growth.
Jefferies analyst Corey Tarlowe expressed optimism, stating, "We’re encouraged by Costco’s broad-based sales momentum and believe it continues to offer strong value, which should drive healthy comp growth." The company has expanded e-commerce initiatives and enhanced in-store experiences, such as faster checkout and extended hours. It has also mitigated tariff impacts by rerouting shipments, increasing pre-ordered inventory, and adjusting product assortments.
Despite the earnings beat, Costco shares fell nearly 1% in after-hours trading Thursday and are down roughly 4% year-to-date—a surprising reversal for a long-time market outperformer. Over the past five years, the stock surged 135%, outpacing the S&P 500’s 88% gain. The muted 2024 performance suggests Wall Street is questioning its ability to sustain outperformance, especially given its premium valuation. At ~43x forward P/E (down from a recent peak of 57x), it remains well above the S&P 500’s 22.5x.
Superficially, Costco’s results show no red flags. The retailer continues to deliver steady profit and revenue growth, maintaining its reputation as one of the few consumer companies with consistent execution. Recent monthly sales reports indicated comp growth slightly above 6% throughout fall, signaling healthy demand and market share gains.
However, analysts flagged concerns over slowing membership renewal rates, which dipped to 89.7% in Q1 FY2026 from 89.8% in Q4 FY2025 and 90.2% in Q3. UBS’s Michael Lasser called this the largest quarterly decline in at least 15 years. Management attributed the drop to more online sign-ups (which have slightly lower renewal rates) and expects further modest declines until trends stabilize. Targeted marketing for expiring members helped limit the Q1 decrease.
Lasser added that investors are wary of tariff-related cost pressures. Costco recently joined a lawsuit against the Trump administration over tariffs—a rare move among major retailers, most of whom have warned about rising costs but avoided litigation. The action aims to secure refunds if the Supreme Court invalidates new import duties. Encouragingly, Q1 gross margins held steady YoY at 11.32%, with Millerchip citing mitigation efforts like boosting private-label sales and sourcing more from low-tariff countries.
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