[COST] Costco: Can Membership Fees Keep Compounding Without the Fee Increase?

Costco runs membership warehouse clubs and the e-commerce sites attached to them, and the structure is deliberately simple: keep the assortment narrow, sell it to paying members at a very thin markup, and let volume and fast inventory turnover earn what a normal retail markup would otherwise have to earn. Its earnings call is scheduled for 2026-09-24, when it is expected to report Fiscal 2026 fourth quarter, the 16 weeks ended August 30, 2026, together with the 52-week fiscal year ended August 30, 2026. Costco's fiscal year ends on the Sunday closest to August 31 and its fourth quarter consists of four four-week periods, and the company confirmed the 52-week year ended August 30, 2026 in its September 2, 2026 August sales release.[1] The most recent formal disclosure is the fiscal 2026 third quarter, the 12 weeks ended May 10, 2026: total revenue of $70,527 million, made up of $69,154 million of net sales and $1,373 million of membership fees, with operating income of $2,815 million, net income of $2,192 million and diluted earnings per share of $4.93 against $4.28 a year earlier.[2][3] Company-issued guidance amounts to two items: an intention to spend approximately $6,500 million on capital expenditures in fiscal 2026, and a plan to open 13 additional new warehouses, including one relocation, in the remainder of the year.[4] More important, Costco already disclosed in its August sales release of September 2, 2026 that net sales for the 52-week fiscal year ended August 30, 2026 were $297.3 billion, up 10.2% from $269.9 billion, so the top line this report will formalise is already on the record.[5] Barchart's preview of July 27, 2026 listed analyst consensus of $6.51 in fourth-quarter diluted earnings per share, up 10.9% year over year, and $20.42 for the full year.[6]

Three things will decide how the coming results read. First, the underlying growth rate of Costco membership fees now that the September 2024 fee increase has fully lapped: third-quarter membership fees of $1,373 million rose 10.7% year over year and 9.9% excluding currency, but management said the fee increase accounted for a little more than one quarter of that growth and that membership income grew 7% excluding the fee increase and currency, and the fourth quarter is the first period with no fee-increase contribution at all.[7] Second, the margin on core merchandise itself: reported gross margin of 11.04% was 21 basis points lower year over year yet one basis point higher excluding gasoline inflation, while core-on-core margin, which strips the mix effect out entirely, fell only nine basis points, and the fourth quarter faces a far less favourable gasoline comparison than the third.[8] Third, how many warehouses actually opened: management cut the fiscal 2026 net new opening plan twice, from up to 35 in the annual report down to 26, while still holding to a target of 30 or more a year, with the worldwide count at 928 as of May 10, 2026.[9]

Company Background and Business Structure

Costco began operations in Seattle in 1983, is incorporated in Washington State and is headquartered in Issaquah, and it runs on one rule: members pay an annual fee up front in order to buy at the prices the deliberately thin markup produces. The base annual membership fee in the United States is $65, with an Executive upgrade for a further $65 that earns a 2% reward on qualified purchases up to $1,250 a year. At August 31, 2025 the company operated 914 warehouses worldwide — 629 in the United States and Puerto Rico, 110 in Canada, 42 in Mexico, 37 in Japan, 29 in the United Kingdom, 20 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, two each in France and Sweden and one each in Iceland and New Zealand — with e-commerce sites in eight of those countries, and the shares trade on Nasdaq under COST.[10] By May 10, 2026 the count had reached 928.[9]

The company reports three geographic segments, while revenue itself arrives in two economically different forms. In FY2025 the United States segment produced total revenue of $200,046 million and operating income of $6,878 million, Canada $36,923 million and $1,849 million, and Other International $38,266 million and $1,656 million, for consolidated total revenue of $275,235 million and operating income of $10,383 million.[11] Within that, net sales of $269,912 million are merchandise and services sold to members, split between the core categories of fresh foods, foods and sundries and non-foods, and the warehouse ancillary and other businesses that include gasoline, pharmacy, optical, hearing aids, food courts, tire installation, travel and e-commerce; membership fees of $5,323 million are charged annually per paid membership, recognised ratably over the twelve-month term, and carry no merchandise cost at all.[10]

The vertical integration that supports the price position is not broken out as its own reporting line. The Kirkland Signature private label runs across the whole assortment, and Costco also operates its own manufacturing facilities and depot network, all of which sit as cost centres inside the same three geographic segments rather than as a separate line of business. Costco also does not disclose profitability by merchandise category or by ancillary business, giving only their effect on consolidated gross margin in basis points in the management discussion, so anyone outside the company who wants to judge merchandise pricing has to work from the basis-point attributions management provides.[10]

Financial History and Current Position

Costco's revenue has compounded steadily over five years. Total revenue rose from $195,929 million in FY2021 to $226,954 million in FY2022, $242,290 million in FY2023, $254,453 million in FY2024 and $275,235 million in FY2025; over the same period operating income rose from $6,708 million to $10,383 million and net income from $5,007 million to $8,099 million, with FY2025 diluted earnings per share of $18.21 against $16.56 in FY2024.[10]

The FY2025 profit structure shows how thin the markup really is. Gross profit of $35,349 million was earned on net sales of $269,912 million, against SG&A of $24,966 million; gross margin percentage rose 20 basis points, or 11 basis points excluding gasoline price deflation, while SG&A as a percentage of net sales rose 11 basis points.[12] The cash side was comfortable: operating cash flow of $13,335 million against capital expenditure of $5,498 million left free cash flow of $7,837 million, with $15,284 million of cash and short-term investments, $10,221 million of total debt and $29,164 million of equity at year end.[10]

The membership side was still expanding in FY2025, though the renewal rate had begun to soften. Membership fee revenue grew 10% to $5,323 million, with 81.0 million paid members and 145.2 million cardholders at year end; the renewal rate was 92.3% in the United States and Canada and 89.8% worldwide, and Executive members accounted for approximately 73.6% of worldwide net sales.[13]

Fiscal 2026 has run faster. First-quarter total revenue was $67,307 million with operating income of $2,463 million and net income of $2,001 million; the second quarter was $69,597 million, $2,606 million and $2,035 million; the third quarter was $70,527 million of total revenue, $2,815 million of operating income and $2,192 million of net income. Across the first thirty-six weeks, net sales reached $203,374 million, membership fees $4,057 million, operating income $7,884 million and net income $6,228 million, or $14.01 per diluted share.[3] Third-quarter comparable sales rose 9.8%, or 6.6% excluding gasoline prices and currency, with traffic up 2.4% and ticket up 7.3%, while digitally-enabled comparable sales rose 21.5%.[2][14] Reported gross margin was 11.04% of net sales, 21 basis points lower year over year but one basis point higher excluding gasoline inflation, and the SG&A rate was 8.96%, 20 basis points better.[8] Capital expenditure was $4,228 million in the first thirty-six weeks against the full-year intention of approximately $6,500 million;[4] and net sales of $297.3 billion for the 52-week fiscal year ended August 30, 2026, up 10.2%, were already disclosed in the sales release of September 2, 2026.[5]

Operating Model

Costco's revenue equation has two economically different legs. Net sales scale with the warehouse base, with comparable sales and with gasoline and e-commerce penetration, and were $269,912 million in FY2025, growing through comparable sales at the existing base and through sales at newly opened warehouses outside that base; membership fees equal paid members multiplied by a blended annual fee, $5,323 million in FY2025 and $1,373 million in the third quarter of fiscal 2026, and are recognised ratably across the twelve-month membership term rather than at sign-up.[10][3]

The profit equation explains why the member count matters more to profit than merchandise pricing does. Operating income of $10,383 million in FY2025 is a thin merchandise gross profit plus an almost cost-free membership fee, less SG&A of $24,966 million, and the fee alone is close to half of that operating income.[12] Gross margin moves mainly with mix rather than with markup: gasoline, e-commerce and pharmacy carry lower gross margin percentages and mechanically dilute the reported rate when they grow faster, while the Executive 2% reward is charged inside merchandise costs, so only core-on-core margin, which removes the mix effect, reflects merchandise pricing itself — in the third quarter of fiscal 2026 that measure fell nine basis points while reported core merchandise margin fell 46 basis points.[15] The SG&A rate runs the other way, because a larger gasoline sales base mechanically lowers the ratio without any change in underlying cost.[8]

The cash model starts from negative working capital. Members pay at the point of sale while inventory turns rapidly and is largely financed by suppliers, and membership fees are collected up front and sit in deferred membership fees until recognised, which is how operating cash flow reached $13,335 million in FY2025.[10] The largest use of that cash is capital expenditure — $5,498 million in FY2025 and an intention of approximately $6,500 million in fiscal 2026, funding new warehouses, remodels, depots and digital systems — and what remains supports a growing regular dividend, buybacks sized to offset equity-compensation dilution, and a cash balance management has said it would release through a special dividend rather than a large acquisition.[4]

Connecting these drivers back to the statements, the lags are what matter. Paid members sign up in the current period but the fee is recognised across the following four quarters; the United States and Canada renewal rate is a trailing calculation covering a seven-to-eighteen-month window, so a change in sign-up mix only shows up in the reported rate two to four quarters later; and roughly four to eight quarters separate capital spending from a warehouse opening, with a new warehouse contributing revenue at lower initial operating profitability for about a year before it enters the comparable base.[13] The boundaries of the model are equally clear: Costco does not disclose gross margin, operating income or capital employed by merchandise category, gasoline, pharmacy or e-commerce, segment reporting is geographic rather than by line of business, and membership fee revenue is given in total without splitting base and Executive tiers, so any category-level conclusion can only come from the basis-point attributions management provides in the management discussion and on the call.[10]

Industry and Competitive Position

Costco is the second-largest warehouse club operator by revenue in a highly concentrated format, competing directly with Walmart's Sam's Club and with BJ's Wholesale Club, and indirectly with supermarkets, supercentres, hard discounters, online retailers, gasoline stations and specialty retailers in every country where it operates. Its own compensation peer group names Walmart, Home Depot, Lowe's, TJX, Target, Kroger, Best Buy, BJ's Wholesale Club, CVS Health, Ross Stores and Wesfarmers.[10]

What distinguishes Costco inside that group is not scale but the composition of its profit. Because roughly half of operating income arrives as a membership fee, it can hold merchandise gross margin near 11% of net sales, a level general merchandise competitors cannot match without losing money, and it treats being first to lower prices and last to raise them as an operating rule rather than a promotion.[12] Renewal rates above 92% in the United States and Canada, and Executive members accounting for around three-quarters of worldwide net sales, are the observable evidence that the format still holds.[7]

The exposures sit on the technology and logistics side. Costco's own risk disclosure concedes that some competitors have greater financial resources and technology capabilities, including faster adoption of artificial intelligence, better access to merchandise and greater market penetration; on same-day delivery the company relies on third-party partners rather than its own fleet, and said on the third-quarter call that it is happy with those partners while continuing to evaluate further vertical integration.[16] Growth headroom is heavily international: 629 of the 914 warehouses at the end of FY2025 were in the United States, while seven of that year's 24 net new warehouses opened in Other International markets, and management has named China, Korea, Japan, Spain, France and the United Kingdom as the markets with the most runway over the next five to ten years.[10]

Core Debates

With the September 2024 fee increase fully lapped, can paid-member growth and Executive upgrades keep membership fee revenue compounding at a double-digit rate, and is the renewal-rate decline caused by online sign-ups a temporary calculation effect or a structural fall in retention?

This debate matters because close to half of Costco's operating profit arrives as an annual fee that carries no merchandise cost. Membership fees were $5,323 million in FY2025 against operating income of $10,383 million, and because merchandise gross margin is deliberately held thin, the profit trajectory of the whole company is set by how many members pay, at what tier and how many renew, far more than by what happens to merchandise pricing.[12] The third-quarter numbers support both readings: membership fees of $1,373 million grew 10.7% year over year and 9.9% excluding currency, management said the September 2024 United States and Canada fee increase accounted for a little more than one quarter of that growth and that the figure was 7% excluding the fee increase and currency, while paid members reached 82.9 million, up 4.1%, paid Executive memberships reached 41.2 million, up 9.6%, and penetration of sales to Executive members was 75.0%.[7][3]

The renewal rate is the only metric in this debate that is weakening. In the third quarter the United States and Canada rate was 92.2% and the worldwide rate 89.7%, below the 92.3% and 89.8% reported at the end of FY2025 and below the 92.7% and 90.2% reported at the end of the third quarter of FY2025.[2][13] Management has attributed the decline to a growing share of memberships sold online, which renew at a slightly lower rate than warehouse sign-ups, and said on the first-quarter call in December 2025 that Costco is still at a lower renewal rate on digital sign-ups than on warehouse sign-ups and that the next couple of quarters could still show a slight decline.[17] So far every visible piece of evidence is consistent with that mix explanation, and nothing disclosed shows retention deteriorating within a cohort, but the explanation itself cannot be verified independently from outside.[7]

The transmission and the observation points follow directly. Paid members and the renewal rate set the base on which the annual fee is charged, and the fee is then recognised across the following twelve months, so a change in the member base or the renewal rate reaches membership fee revenue with roughly a one-to-four-quarter lag and drops almost entirely to operating income.[13] The fourth quarter is the first period with no fee-increase contribution at all, so what matters is whether membership fee growth excluding the fee increase and currency holds near 7%, whether the United States and Canada renewal rate stabilises at or above 92.2%, whether paid-member growth holds near 4%, and whether Executive membership growth stays near 9.6% with penetration above 75.0%.[7] The falsifiers are equally concrete: if the renewal rate keeps falling while management stops attributing it to online sign-ups, the mix explanation is overturned and retention itself is deteriorating; if membership fee growth excluding currency falls below 5% while paid members still grow near 4%, the Executive-upgrade contribution has been exhausted; and if the renewal rate recovers to 92.7% or higher while online sign-ups keep rising, the structural-retention worry is falsified.[7]

Is the decline in reported gross margin only a mix effect from gasoline, pharmacy and e-commerce growing faster than core merchandise, or is core merchandise margin itself being eroded as Costco absorbs cost increases to defend price?

The two readings imply opposite futures. Costco's merchandise markup is thin to begin with, so a change of tens of basis points in gross margin is material against an operating income base of $10,383 million; a mix effect reverses on its own when gasoline prices normalise, while genuine core-margin erosion compounds and has to be paid for out of SG&A leverage or out of membership fees.[12] The layered third-quarter figures are these: reported gross margin was 11.04%, 21 basis points lower year over year and one basis point higher excluding gasoline inflation; reported core merchandise margin fell 46 basis points, and 29 basis points excluding gasoline inflation; and core-on-core margin, which removes the mix effect entirely, fell only nine basis points. Management attributed those nine points to lower margins in fresh and in foods and sundries where it invested in lower prices on everyday items such as eggs and beef, and to higher transportation costs from higher gas prices.[8]

The mix pressure itself is measurable. Warehouse ancillary and other business sales rose $3,468 million, or 29%, in the quarter, led by gasoline and pharmacy, against core merchandise sales up $3,721 million, or 7%, while the average gasoline price per gallon rose 20% and that item alone added 221 basis points to net sales.[14] Widen the window to the first thirty-six weeks, however, and the arithmetic at the core level runs the other way: core-on-core margin rose 14 basis points and gross margin excluding gasoline inflation was 11.18%, six basis points higher than a year earlier.[15] In other words, the mix explanation carries most of the reported decline, but the nine-basis-point core-on-core decline inside the quarter is a real price investment rather than an accounting artefact, and it has not yet been tested in a quarter without a gasoline tailwind.

The fourth quarter provides exactly that test. The gasoline comparison is far less favourable than in the third quarter, so whether core-on-core margin and gross margin excluding gasoline inflation come in above the prior year is the clean test that merchandise pricing held; at the same time, whether the SG&A rate excluding gasoline inflation keeps improving matters because operating leverage is what funds price investment — the reported SG&A rate of 8.96% was 20 basis points better year over year but only two basis points better excluding gasoline inflation.[18] The basis-point split between core merchandise categories, warehouse ancillary businesses, LIFO and the 2% Executive reward in the annual report's gross margin discussion is the disclosure that would settle the question.[15] The falsifiers: if reported gross margin falls more than 30 basis points in a quarter with flat or lower gasoline prices, the mix explanation is overturned; if core-on-core margin returns to year-over-year expansion for two consecutive quarters while gasoline penetration keeps rising, the core-erosion reading is falsified; and if the SG&A rate excluding gasoline inflation deteriorates while core-on-core margin also declines, price investment is no longer being funded by operating leverage.[8]

After revising its full-year opening plan down twice, can Costco actually deliver the 30-plus net new warehouses a year it targets, and is digitally-enabled growth bringing in new demand or diverting transactions that would otherwise have happened in the warehouse?

New warehouses are the only source of net sales growth outside the comparable base and the main channel through which Costco acquires paid members, while capital expenditure of roughly $6,500 million a year is both the price of that growth and the largest single subtraction from free cash flow.[4] The plan itself was changed twice inside the fiscal year: the FY2025 annual report said Costco planned to open up to 35 new warehouses in fiscal 2026, including five relocations;[19] the first-quarter call in December 2025 revised planned net new openings down to 28, citing delays with buildings in Spain, while repeating the target of 30 or more a year in future years;[20] and the third-quarter call in May 2026 revised again to 26, with two buildings moved into fiscal 2027 and the 30-plus target still in place.[9] The warehouse count rose from 914 at August 31, 2025 to 928 at May 10, 2026, with 16 new warehouses opened in the first thirty-six weeks and 13 more planned for the remainder of the year, against capital expenditure of $4,228 million in those thirty-six weeks and a full-year intention of approximately $6,500 million, revised up from the $6,000 to $6,500 range stated in the annual report.[4]

On the digital side the evidence so far points to incremental demand rather than diversion. Digitally-enabled comparable sales rose 21.5% in the third quarter, site and app traffic rose 37%, personalised recommendation carousels converted at three times the typical rate and contributed just under half a billion dollars of e-commerce sales, and traffic sourced from artificial intelligence grew triple digits from a low base with the highest conversion rate of any traffic source.[21][2] Worldwide shopping frequency still grew 2.4% in the same quarter, so digital growth has not yet coincided with falling warehouse traffic; but the two have not been observed together in a quarter without a gasoline-driven traffic tailwind.[14]

The transmission separates into two lines. Capital expenditure takes roughly four to eight quarters to become an open warehouse, and a new warehouse then contributes revenue outside the comparable base for about a year at lower initial operating profitability; digitally-enabled sales add volume in the same quarter but at a lower gross margin percentage, and capital expenditure is subtracted from operating cash flow to give free cash flow.[4] What to watch next is the actual fiscal 2026 net new opening count in the annual report against the 26 management last stated, whether a fiscal 2027 plan of 30 or more is stated explicitly, where full-year capital expenditure lands against the approximately $6,500 million intention and what the fiscal 2027 intention is, and whether comparable shopping frequency stays positive in quarters without a gasoline tailwind while digitally-enabled comparable sales stay above 15%; whether the Google Commerce Media and YouTube collaboration launched in the third quarter produces separately disclosed retail media revenue is also worth following.[21] The falsifiers: a third downward revision to the fiscal 2026 or fiscal 2027 opening plan would show the 30-plus target is an ambition rather than a pipeline; capital expenditure landing at or above plan while openings fall short would locate the constraint in real estate and permitting rather than capital; and comparable shopping frequency turning negative while digitally-enabled comparable sales stay above 15% would support the cannibalisation reading.[9]

Risks and Falsifiers

The first risk is that gasoline is currently flattering both the sales line and the SG&A rate, and that the comparison reverses when prices normalise.[22] A 20% rise in the average price per gallon added 221 basis points to third-quarter net sales, and warehouse ancillary and other business sales rose 29%, led by gasoline and pharmacy, against core merchandise up 7%. When that reverses, the contribution disappears from reported growth and the SG&A rate loses the mechanical benefit of a larger sales base.[14][18] The observation that would falsify the worry is clean: a quarter in which gasoline prices are flat or lower year over year and comparable sales excluding gasoline and currency still print at or above 6%, showing the underlying volume never depended on fuel.

The second risk is that the renewal rate has now fallen for several consecutive quarters while management's explanation — a growing share of online sign-ups that renew at a lower rate — is not independently observable from outside.[17] If the cohort effect is larger or more permanent than described, the fee line loses its base: membership fees were $1,373 million in the third quarter of fiscal 2026 and $5,323 million in FY2025, close to half of operating income and carrying no merchandise cost.[3] The falsifier is the United States and Canada renewal rate returning to 92.7% or higher while the online share of sign-ups continues to rise, which would show the mix effect was transitional.[13]

The third risk is that the opening plan was revised down twice inside a single fiscal year, from up to 35 gross openings in the annual report to 28 net new in December 2025 and to 26 net new in May 2026, while management continues to state a 30-plus target for coming years.[19][20] What is exposed is net sales growth outside the comparable base and the member-acquisition channel that feeds membership fees, and capital expenditure of approximately $6,500 million in fiscal 2026 is already committed against that pipeline.[4] If fiscal 2026 closes at 26 net new warehouses or better with an explicit fiscal 2027 plan of 30 or more stated in the annual report or on the fourth-quarter call, the worry is falsified.[9]

The fourth risk comes from tariff refunds: the amount, the timing and the mechanism for returning them to members are all unresolved, while a customer class action contests whether the money belongs to Costco or to the members who paid the higher prices. Management has said the plan is to return to members in some form the portion of tariffs that was passed on to them, and that how much is returned and when depends on how much refund money arrives and when, as well as on developments in the lawsuit filed over the return process.[23] The exposed line is core merchandise gross margin, because the recovered value is being returned through lower prices rather than as a separate payment, so the benefit lands as price investment rather than as a one-off gain, while the litigation is a contingent liability. If Costco quantifies the refunds received and the price investment funded by them in the fiscal 2026 annual report, the tariff effect can be separated from underlying core-on-core margin.

The fifth risk is that competitors with greater technology resources are moving faster on delivery speed and on artificial intelligence, while Costco relies on third-party partners for the last mile rather than owning it.[16] What is exposed is digitally-enabled comparable sales, which grew 21.5% in the third quarter and carry a lower gross margin percentage than warehouse sales, and ultimately the shopping frequency that supports comparable sales.[21] The falsifier is digitally-enabled comparable sales holding above 15% for four consecutive quarters while comparable shopping frequency also stays positive, which would show the third-party model is competitive.

What to Watch Next

• Membership engine: membership fee growth excluding the fee increase and currency, paid members, and the United States and Canada renewal rate. The baselines are $1,373 million of third-quarter fees growing 7% on that adjusted basis, 82.9 million paid members up 4.1%, and a 92.2% renewal rate. The fourth quarter is the first with no fee-increase contribution, so the question is whether the adjusted growth rate holds and the renewal rate stops slipping; a recovery to 92.7% or higher while online sign-ups keep rising would falsify the retention worry, while a further decline that management no longer attributes to online sign-ups would overturn the mix explanation.
• Core margin against gasoline mix: core-on-core margin, gross margin excluding gasoline inflation and the SG&A rate excluding gasoline inflation. The baselines are reported gross margin of 11.04%, core-on-core down nine basis points, and an SG&A rate of 8.96% that was only two basis points better excluding gasoline inflation. Two consecutive quarters of core-on-core expansion would falsify the core-erosion reading, while a fall of more than 30 basis points in reported gross margin in a quarter with flat or lower gasoline prices would overturn the mix explanation.
• Opening delivery: the actual fiscal 2026 net new opening count, the fiscal 2027 plan and full-year capital expenditure. The baselines are a plan of 26 net new warehouses, 928 warehouses in operation and $4,228 million of capital expenditure in the first thirty-six weeks against an intention of approximately $6,500 million. Landing at 26 with an explicit fiscal 2027 plan of 30 or more would falsify the worry; a third downward revision would show the 30-plus target is an ambition; capital expenditure at plan with openings short would locate the constraint in real estate and permitting.
• Digital growth against warehouse traffic: digitally-enabled comparable sales and comparable shopping frequency, running at 21.5% and 2.4% respectively in the third quarter. The test is whether both stay positive in a quarter without a gasoline-driven traffic tailwind; frequency turning negative while digital stays above 15% would support the cannibalisation reading.
• Tariff refunds: whether the annual report quantifies the refunds received and the price investment funded by them. Management has said it plans to return the tariffs passed on to members in some form, with amount and timing undetermined; a quantified disclosure would separate the tariff effect from underlying core-on-core margin, while a ruling that the money belongs to members would create a contingent liability.

Conclusion

Costco's results are set by three things: how many members pay and at what tier determines the almost cost-free fee, the deliberately thin merchandise markup determines gross profit, and operating leverage determines what is left after subtracting one from the other. Close to half of the $10,383 million of FY2025 operating income came from $5,323 million of membership fees;[12] in the third quarter of fiscal 2026 membership fees were $1,373 million, growing 7% excluding the fee increase and currency, with 82.9 million paid members and a 92.2% renewal rate in the United States and Canada,[7] while reported gross margin was 11.04% and core-on-core margin fell nine basis points.[8] The unresolved relationship sits exactly where those two lines meet: with the fee increase now fully lapped, whether member growth and Executive upgrades can carry the fee line on their own, and whether price investment in core merchandise continues to be paid for by an improving SG&A rate.

Independent commentary published after the third quarter does not point in one direction. Bryan Wassel of Retail Dive reads the quarter as evidence that the digital investment is now producing measurable, compounding commercial returns, citing personalised recommendation carousels that contributed just under $500 million in digital sales after $470 million the quarter before, and artificial-intelligence search traffic that is small in volume but converts better than any other source.[24] Bailey Pemberton of Simply Wall St looks at the same quarter from the opposite side, arguing that worldwide warehouse traffic growth has clearly slowed even as the company keeps opening warehouses and maintains high Executive penetration, in contrast with the consistently strong traffic that supported Costco's record in prior years.[25] Maura Webber Sadovi of CFO Dive reports a third line entirely: the tariff refunds are actually arriving, Costco has said it received about one-third of what it is entitled to and has begun returning the "recovered value" through lower prices on some products, while contesting a customer class action arguing the money belongs to the members who paid the higher prices.[26] The three press on the digital, membership-traffic and merchandise-margin debates respectively: the first holds that digital growth is incremental rather than a low-margin diversion, the second questions whether comparable sales can keep leaning on traffic rather than on ticket and fuel prices, and the third means the core margin of the next several quarters will contain a price investment whose size and timing are undetermined. These are outside interpretations, not facts, and not a vote.

What would materially strengthen or weaken the current understanding is a combination of later operating and financial observations. If the fourth quarter shows membership fee growth still near 7% with no fee-increase contribution at all and the United States and Canada renewal rate stabilising at 92.2%, while core-on-core margin and gross margin excluding gasoline inflation come in above the prior year in a quarter with a distinctly unfavourable gasoline comparison, and the SG&A rate excluding gasoline inflation keeps improving, then the reading that this is mix dilution rather than core erosion, and a calculation drag rather than deteriorating retention, is materially strengthened.[7][8] Conversely, a renewal rate that keeps falling while management stops attributing it to online sign-ups, membership fee growth excluding currency below 5%, a reported gross margin decline of more than 30 basis points in a quarter with flat or lower gasoline prices, or fiscal 2026 net new openings short of 26 with a fiscal 2027 plan again below 30, would each materially weaken it.[4][9]

Sources

[1] Drillr earning_call_calendar entry for COST dated 2026-09-24, calendar last updated 2026-09-08 · 2026-09-08 · earnings_calendar

[2] COST 8-K filed 2026-05-28 · 2026-05-28 · 8-K · https://www.sec.gov/Archives/edgar/data/909832/000090983226000046/costex9928-k52826.htm

[3] COST 10-Q filed 2026-06-03 - condensed consolidated statements of income · 2026-06-03 · 10-Q · https://www.sec.gov/Archives/edgar/data/909832/000090983226000051/cost-20260510.htm

[4] COST 10-Q filed 2026-06-03 - Capital Expenditure Plans · 2026-06-03 · 10-Q · https://www.sec.gov/Archives/edgar/data/909832/000090983226000051/cost-20260510.htm

[5] COST August 2026 sales release dated 2026-09-02 · 2026-09-02 · 8-K · https://www.globenewswire.com/news-release/2026/09/02/3355518/0/en/costco-wholesale-corporation-reports-august-sales-results.html

[6] Barchart, What to Expect From Costco Wholesale's Q4 2026 Earnings Report, 2026-07-27 · 2026-07-27 · Barchart · https://finance.yahoo.com/markets/stocks/articles/expect-costco-wholesales-q4-2026-134037110.html

[7] COST Q3 FY2026 earnings call 2026-05-28 - membership · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[8] COST Q3 FY2026 earnings call 2026-05-28 - margin · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[9] COST Q3 FY2026 earnings call 2026-05-28 - warehouse program · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[10] COST 10-K filed 2025-10-08 · 2025-10-08 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000909832&type=10-K

[11] COST 10-K filed 2025-10-08 - Note 11 Segment Reporting · 2025-10-08 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000909832&type=10-K

[12] COST 10-K filed 2025-10-08 - FY2025 overview highlights · 2025-10-08 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000909832&type=10-K

[13] COST 10-K filed 2025-10-08 - renewal rates · 2025-10-08 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000909832&type=10-K

[14] COST 10-Q filed 2026-06-03 - Net Sales · 2026-06-03 · 10-Q · https://www.sec.gov/Archives/edgar/data/909832/000090983226000051/cost-20260510.htm

[15] COST 10-Q filed 2026-06-03 - Gross Margin · 2026-06-03 · 10-Q · https://www.sec.gov/Archives/edgar/data/909832/000090983226000051/cost-20260510.htm

[16] COST 10-K filed 2024-10-09 - competition risk factor · 2024-10-09 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000909832&type=10-K

[17] COST Q1 FY2026 earnings call 2025-12-11 - digital sign-up renewal gap · 2025-12-11 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[18] COST Q3 FY2026 earnings call 2026-05-28 - SG&A · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[19] COST 10-K filed 2025-10-08 - Capital Expenditure Plans · 2025-10-08 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000909832&type=10-K

[20] COST Q1 FY2026 earnings call 2025-12-11 - openings revision · 2025-12-11 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[21] COST Q3 FY2026 earnings call 2026-05-28 - digital and AI · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[22] COST Q3 FY2026 earnings call 2026-05-28 - gasoline · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[23] COST Q3 FY2026 earnings call 2026-05-28 - tariff refunds · 2026-05-28 · earnings call · https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Third-Quarter-and-Year-To-Date-Operating-Results-For-Fiscal-2026/default.aspx

[24] Retail Dive, Costco's personalization effort drives $500M in digital sales, 2026-06-03 · 2026-06-03 · Retail Dive · https://www.retaildive.com/news/costco-digital-personalization-500-million/821702/

[25] Simply Wall St, Costco (COST) Faces Slower Warehouse Traffic As Membership Growth Questions Build, 2026-06-25 · 2026-06-25 · Simply Wall St · https://finance.yahoo.com/markets/stocks/articles/costco-cost-faces-slower-warehouse-060811268.html

[26] CFO Dive, Costco fights customer's tariff suit as refunds flow in, 2026-08-24 · 2026-08-24 · CFO Dive · https://www.cfodive.com/news/costco-fights-customers-tariff-suit-refunds-flow/828644/