Costco Wholesale Corporation COST

Key data

The business

Costco sells an annual membership. The 931 warehouses, the pallets, the fuel pumps, and the private label are the reason to hold the card rather than the source of the profit, because merchandise is priced at a capped markup by policy. The buyer is a household that shops there because the prices are provably good, and the switching cost is the fee it has already paid.

Payment arrives twice: a thin spread on $69.15 billion of quarterly net sales, capped by that markup policy, and $1.373 billion of membership fees recognized across the year of each membership. Fees grew 10.7% last quarter while net sales grew 11.6%. What changed is the price rather than the mechanics, because the shares sit 13.6% below their high while quarterly earnings per share set a record at $4.93.

Business read. A membership annuity wrapped around a deliberately break even retailer, priced at 47.7 times trailing earnings.

Things you might not know

Membership fees of $1.373 billion in the quarter ended May 10, 2026 equalled 48.8% of the $2.815 billion of operating income earned in that quarter. Close to half the profit arrives before a single pallet moves, which is why the renewal rate moves earnings before any merchandising decision does.

Digitally enabled comparable sales rose 21.5% in that same quarter, against total company comparable sales of 9.8% and 6.6% adjusted for fuel and foreign exchange. The fastest growing piece of the business is the piece with no warehouse attached to it, and it compounds at roughly triple the adjusted store rate.

Costco paid $9.04 billion of dividends in FY2024 against $2.18 billion in FY2025, the gap being a special dividend. Cash then rose from $14.161 billion at fiscal year end to $18.946 billion by May 10, 2026, while buybacks over those 36 weeks ran only $603 million.

Fundamentals

Every line accelerated year over year and none of the gain came from share count. Revenue rose 11.6%, operating income 11.3%, earnings per share 15.2%, and membership fees 10.7%. The single soft spot is gross margin on net sales, down 21 basis points to 11.0%, which is the difference between selling more and keeping more of it.

Valuation

Peers: Walmart FY2026, Target FY2025, BJ's Wholesale FY2025, Kroger FY2025, each on its own latest completed fiscal year, operating income over reported revenue.

Costco earns slightly less operating margin than the peer median, 3.8% against 4.0%, and grows more than three times faster, 8.2% against 2.5%. Peer medians for the three price based rows are marked not disclosed because peer market pricing sits outside the sources permitted for this compression.

Management

Compensation

The linchpins

Win big if

The multiple holds near 47.7x while the current growth rate persists, which requires membership fees to keep compounding faster than the cost base beneath them. The first observable proof is the fiscal fourth quarter print on 2026-09-24, where consensus sits at $6.56 on $94.4 billion and traffic needs to stay positive. The confirming signal is membership fee growth holding near the 10.7% posted in the May quarter while comparable sales excluding fuel and currency stay at or above 6.6%, because that pairing is what reproduced the 15.2% earnings growth already being paid for.

Surprised down if

The multiple keeps compressing toward the mid thirties while earnings still grow, which costs roughly six percentage points a year against an eleven percent grower and is already visible in the 13.6% drawdown from the high. The first observable proof is gross margin on net sales extending the 21 basis point year over year decline recorded in the May quarter at 11.0%. The confirming signal is traffic turning negative while membership fee growth slips below revenue growth, which would make the fee annuity the thing that cracked rather than the thing that held.

Last word

Half the operating income shows up as $1.373 billion of membership fees, and all of the argument shows up as 47.7 times earnings.