Costco Wholesale (NASDAQ:COST) reported fourth-quarter fiscal 2026 net income of $2.998 billion, or $6.75 per diluted share, as sales rose 11.2% and the warehouse club continued to invest in pricing, new locations, digital capabilities and membership growth.
The results for the 16 weeks ended Aug. 30 included a nonrecurring benefit of $0.15 per diluted share from refunds of tariffs imposed under the International Emergency Economic Powers Act, net of partial reinvestment in lower prices for members. Excluding that benefit, net income increased 12.3% from the prior year and diluted earnings per share rose 12.4%, Chief Financial Officer Gary Millerchip said.
Tariff Refunds Support Price Investments
Costco received $184 million in tariff refunds during the quarter, including $174 million in refunds and $10 million in interest. Millerchip said the amount represented a little more than one-third of the total refunds the company expects to receive.
The company has already received a similar amount in the first quarter of fiscal 2027 and intends to reinvest the majority of future refunds in member value. Chief Executive Officer Ron Vachris said Costco used some fourth-quarter refunds to reduce prices in the latter half of the period on produce, meat, beverages, home furnishings and hardware, among other categories.
“Our goal is to be the first to lower prices where we see opportunities to do so,” Millerchip said, citing reductions on Kirkland Signature walnuts, Colombian whole bean coffee, dry facial towels and coarse black pepper.
Responding to an analyst question about the sales impact of those investments, Millerchip said Costco continued to see resilient member spending and comparable sales excluding gas and foreign exchange in the 6% to 7% range. He said the company views the price reductions as returning tariff-related value to members, while adding that non-food sales and travel growth showed members were responding to the company’s assortment and value proposition.
Expansion Targets 30 Net New Warehouses Annually
Costco opened 12 warehouses in the fourth quarter, including 10 new U.S. locations, a relocation in Taiwan and its 43rd warehouse in Mexico. For the full fiscal year, the company opened 28 warehouses, including three relocations, resulting in 25 net new buildings and bringing its global warehouse count to 939.
Vachris said Costco plans to open 33 warehouses during fiscal 2027, including five relocations, as it works toward a target of 30 net new openings per year. The planned openings include four in Europe, five in Canada and one in Mexico. The company also cited a pipeline for future expansion in Asia, Australia and other international markets.
Capital expenditures totaled $2.21 billion in the fourth quarter and $6.4 billion for the fiscal year. Costco expects approximately $7.5 billion in capital expenditures in fiscal 2027, primarily reflecting warehouse growth and supply-chain investments intended to support future warehouse and e-commerce sales.
Management said international markets can produce a higher number of members per warehouse, though those members may shop less frequently than U.S. members. Millerchip said the company evaluates growth not only by membership count, but also by engagement, renewal rates and spending.
Membership, Digital Sales and Delivery Programs Expand
Membership-fee income rose 7.3% to $1.849 billion. Excluding foreign exchange and the effect of the September 2024 membership-fee increase, membership income grew 6.8%, driven by higher executive membership penetration and growth in the membership base.
- Paid executive members reached 42.3 million, up 9.4% from a year earlier.
- Total paid members reached 84.1 million, up 3.8%.
- Total cardholders reached 150.4 million, up 3.6%.
- The U.S. and Canada renewal rate was 92.3%, up 10 basis points sequentially.
- The worldwide renewal rate was 89.8%, also up 10 basis points.
Vachris said executive membership penetration reached an all-time high during fiscal 2026. He also said members under age 40 have increased by nearly 60% since the COVID period and now account for more than one-quarter of Costco’s membership base. While those members initially spend less than the average member, management said spending tends to rise as their households and incomes mature.
Digitally enabled sales exceeded $33 billion for the fiscal year, increasing more than 20%. Costco expanded its Uber Eats partnership from 17 states to the entire U.S. and broadened its DoorDash relationship to include the U.S., complementing its existing Instacart partnership in the U.S. and Canada.
Vachris said delivery sales are largely incremental to the warehouse grocery business, with average delivery times across the three platforms under an hour. Management also said customers using the newer marketplaces are significantly younger than Costco’s overall membership base.
Total website and app traffic increased 30% in the quarter. Costco said personalized initiatives generated triple-digit sales growth, and 10% of Costco.com orders now include a personalized item. Traffic from artificial-intelligence search tools also grew at a triple-digit rate for a second consecutive quarter, according to Millerchip, and had the highest conversion rate among sources of site traffic.
Margins Reflect Sales Mix, LIFO Charge and Operating Leverage
Costco’s reported gross margin rate declined 11 basis points year over year to 11.02%, though it increased 20 basis points when excluding gasoline inflation. The company said reported core-on-core margins were affected by sales-mix changes, as gasoline, e-commerce and pharmacy grew faster than core merchandise.
Excluding tariff refunds and the related reinvestment in member value, core-on-core margins on core sales increased 18 basis points. Millerchip said supply-chain efficiencies improved margins across categories, while fresh departments benefited from labor productivity and non-food categories benefited from strong sell-through and favorable sales mix.
The company recorded a $152 million LIFO inventory accounting charge in the quarter, compared with $43 million a year earlier. Millerchip attributed the increase primarily to higher memory costs in consumer electronics and inflation in gas, motor oil and resins tied to the ongoing Middle East conflict. He said the full-year LIFO charge was slightly above $200 million, representing roughly 1.5% inflation on U.S. inventory at year-end.
Costco’s selling, general and administrative expense rate improved 27 basis points to 8.94%. Excluding gas inflation, the SG&A rate improved two basis points. Millerchip said healthcare and general-liability costs have been rising faster than other costs, but the company still achieved modest leverage during the quarter.
Looking ahead, Vachris said the company feels positive about its holiday merchandise assortment after tariff-related assortment disruptions were most significant in the first and second fiscal quarters. He said Costco sees continued opportunities to lower prices, add new products and use its Kirkland Signature brand to reinforce value for members.
About Costco Wholesale (NASDAQ:COST)
Costco Wholesale Corporation operates membership-based warehouse clubs that offer a broad selection of merchandise at generally competitive prices. Its product range includes groceries, fresh foods, apparel, appliances, electronics, furniture, jewelry, hardware, and seasonal goods, along with private-label products sold under the Kirkland Signature brand.
The company also provides a variety of ancillary services, including gasoline stations, pharmacies, optical centers, hearing-aid centers, food courts, tire centers, and travel services.
