Costco Beats Q1 Earnings Estimates With 6.4% Comparable Sales Growth

Costco reported fiscal Q1 2026 EPS of $4.34 (excluding a $0.16 tax benefit), topping the Zacks estimate of $4.26, while revenues of $67.307 billion rose 8.3% year-over-year but narrowly missed the $67.326 billion estimate; both sales and earnings were driven by membership gains, resilient traffic and double-digit e-commerce growth. Comparable sales rose 6.4% overall (U.S. +5.9%), digitally enabled comps jumped 20.5%, membership fees increased 14% to $1.329 billion and renewal rates remained high (92.2% U.S./Canada), supporting gross-margin expansion (11.3%, +4 bps) and a 12.2% rise in operating income to $2.463 billion. Costco ended the quarter with $16.2 billion cash, $5.7 billion long-term debt, stronger operating cash flow ($4.688 billion), $1.53 billion in quarterly capex and plans for ~28 net new warehouses and $6.5 billion of FY2026 capex, signaling continued investment to support market-share gains despite a modest YTD stock underperformance.

Analysis

Costco reported fiscal Q1 2026 EPS of $4.34 excluding a $0.16 tax benefit, beating the Zacks consensus of $4.26, while revenue totaled $67,307 million, up 8.3% year‑over‑year but narrowly missing the $67,326 million estimate. Including the tax benefit, EPS was $4.50 versus $4.04 a year ago, indicating solid earnings leverage despite the revenue miss. Comparable sales rose 6.4% overall with U.S. comps +5.9%, Canada +6.5% and Other International +8.8%, and digitally enabled comps jumped 20.5%, highlighting strong online traction and category breadth in pharmacy, jewelry, tires and appliances.

Membership and margin dynamics underpinned profitability: membership fees increased 14% to $1,329 million (7.3% ex‑price increases and FX), paid households rose 5.2% to 81.4 million, and renewal rates held at 92.2% in the U.S. and Canada. Gross margin expanded 4 basis points to 11.3% and operating income increased 12.2% to $2,463 million, with operating margin improving 20 basis points to 3.7%, showing efficiency gains from inventory and Kirkland penetration.

Balance sheet and reinvestment plans are constructive: cash of $16.2 billion versus long‑term debt of $5.7 billion, operating cash flow rose to $4.69 billion, and capex totaled $1.53 billion in the quarter with FY2026 guidance of ~ $6.5 billion and 28 net new warehouses. The stock is modestly underperforming YTD (‑3.5%) despite a mildly positive operational read, so execution on memberships, digitally enabled sales and capex returns will be the key near‑term drivers for valuation re‑rating.

Key Decisions for Investors

• Consider maintaining or modestly adding to Costco positions given organic membership growth, 20.5% digitally enabled comp strength and margin expansion, but avoid concentrated large fresh buys given the narrow revenue miss and modest YTD stock underperformance
• Monitor three leading indicators—membership renewal rates, digitally enabled comparable sales, and quarterly operating margin—over the next two quarters as confirmation of sustainable earnings upside before increasing exposure
• If risk management is a priority, hedge or scale in with protective options or set disciplined trim triggers tied to deterioration in membership metrics or a reversal in gross‑margin trends, given elevated FY2026 capex of ~$6.5 billion and execution risk with rapid store expansion