Costco’s Q1 2026: Quietly Compounding Through Scale, Fees and Technology

Steady core growth, richer economics

Costco opened its fiscal 2026 with the kind of solid, unflashy performance investors have come to expect—and that competitors quietly fear.

Net sales for the 12 weeks to 23 November rose 8.2% year on year to $65.98 billion. Comparable sales grew 6.4% globally, both reported and on a gas- and FX-adjusted basis, with ex-gas FX-adjusted comps at 7.1%. Traffic rose 3.1% worldwide and average ticket grew 3.2%, indicating both more visits and more spend per trip.

Digitally enabled comp sales surged 20.5%, underscoring that Costco’s e-commerce and same-day delivery businesses are now material growth levers rather than mere add-ons to the warehouse model.

Net income increased to $2.001 billion from $1.798 billion, with EPS up 11.3% to $4.50. Both figures were flattered and then partially offset by stock-based tax benefits in the prior year. Adjusting for those discrete tax items, net income and EPS grew 13.6%—outpacing sales growth and signaling further margin firming.

Gross margin rose 4 bps to 11.32%. While the core reported margin was flat, “core-on-core” margin—core merchandise margin on its own sales—climbed 30 bps. That uplift was broad-based across nonfoods, foods and sundries, and fresh, helped by a more efficient supply chain, higher Kirkland Signature penetration, and increased marketing/alternative profit.

Ancillary and other businesses, notably pharmacy and hearing aids, also delivered a 7 bps gross margin improvement. A smaller LIFO credit than last year shaved 3 bps off the overall margin rate.

Below gross margin, the SG&A rate deteriorated by just 1 bp to 9.60%. In operational terms, management argued the underlying productivity story is stronger than that headline implies: efficiency gains from technology (self-scanning, prescan, digital wallet) fully offset wage investments and extended hours, but were more than neutralized by higher healthcare costs and a 4 bps sales tax assessment for prior years. Stripping out that one-time tax charge and the healthcare spike, Costco would have delivered mid-single-digit basis-point SG&A leverage even on mid-single-digit comps—an encouraging signal for operating margin resilience.

Membership engine still humming

The membership line—Costco’s most predictable profit stream—continues to do much of the heavy lifting for earnings quality.

Membership fee income rose 14% to $1.329 billion. Around half of that growth came from last September’s fee increase in the US and Canada; excluding the hike and FX, underlying membership income still grew 7.3%. That reflects both a larger member base and a shift into higher-value tiers.

Key membership metrics:

• Paid Executive members: 39.7 million, up 9.1% YoY
• Total paid members: 81.4 million, up 5.2%
• Total cardholders: 105.9 million, up 5.1%

Executive members—who pay more and spend more—are rising almost twice as fast as total paid members, bolstered by added perks including extended operating hours and enhanced Instacart benefits.

Renewal rates remain high by any retail standard but nudged down 10 bps from last quarter: US/Canada at 92.2%, worldwide at 89.7%. The modest erosion is a math effect rather than a wholesale change in behaviour. A larger share of new members are signing up online—typically younger and historically renewing at slightly lower rates than in-warehouse signups. That mix shift is dragging the blended renewal figures.

Management has responded with more targeted outreach and “personalized” communication to expiring digital members. Those efforts have already made the decline “less than anticipated.” Still, executives cautioned that the overall renewal rate could drift slightly lower over the next few quarters until this cohort matures and engagement tools bed in.

For investors, the key point is that the fee engine is still growing faster than sales and that the downtick in renewals looks cyclical and mix-driven, not structural.

Merchandising: value narrative intact across baskets

On the shop floor, Costco’s familiar formula of “value, quality, newness” remains in full force, with evidence of share gains across categories.

Fresh and food:
Fresh sales grew mid- to high-single digits, led by double-digit growth in meat. There was robust demand for both higher-cost beef cuts and lower-cost proteins like ground beef and poultry, suggesting that Costco is capturing both trading up and trading down within its membership.

Food and sundries comps were mid-single digits, with candy and food the standout segments. Newness is doing some of the work here: items such as Dubai chocolate are resonating, and the company continues to lean on Kirkland Signature as an inflation/ tariff buffer.

Nonfoods:
Nonfood comps came in mid-single digits, a deceleration from recent double-digit surges but still above many peers and cycling extraordinary prior-year demand for gold and gift cards. Within that aggregate:

• Gold and jewelry, special events, and health and beauty all grew double digits.
• Majors, tires, and small appliances posted high single-digit comps.
• Apparel was called out as an area of improving momentum.

Costco has been quietly tweaking assortments to mitigate tariffs by shifting sourcing (more US-made goods, new countries of origin) and leaning harder into Kirkland Signature, which offers 15–20% savings versus national brands at equal or better quality. Roughly 45 new Kirkland SKUs launched in Q1, from daily facial towels to caramelized blueberry croissants and new apparel lines. Even the food court is part of the value theatre, with a new caramel brownie sundae in the rotation.

There is also a visible willingness to cut prices where cost relief allows. Management highlighted selective reductions on Kirkland items such as chicken pot pie, bacon, whipped cream, and walnuts—small but symbolic moves in an environment where shoppers remain acutely price-sensitive.

Ancillary and services:
Pharmacy, food court, hearing aids, and optical all had strong quarters, reinforcing the role of services in deepening engagement and traffic.

Gas station comps were low single digits: a mix of slightly deflationary fuel prices offset by volume growth. Costco Travel, increasingly a quiet profit centre, set back-to-back daily sales records during the Cyber Monday period, with over $100 million in US gross bookings in the five days after Thanksgiving, up 12% YoY.

Tech and AI: pragmatism over hype

If Costco was once regarded as a digital laggard, that caricature looks increasingly out of date. The company is not trying to reinvent itself as a tech platform, but it is systematically layering in tools that sharpen its existing model.

In the warehouses, several technology initiatives are now at scale:

• Membership scanning at entry and a digital wallet streamline the customer journey and deepen data capture.
• Prescanning for small and mid-sized baskets has delivered up to 20% faster checkouts in early-adopting locations, helping Costco achieve record checkout productivity late in the quarter.

Online, enhancements to personalization—product recommendations based on search history and behaviour—are already generating a “very positive” sales lift. Site traffic rose 24%, app traffic 48%, and digitally enabled comp sales 20.5%. Same-day delivery (Instacart in the US; Uber Eats and DoorDash internationally) outpaced even that digital growth, cementing Costco’s relevance in convenience-driven baskets.

AI is being deployed in characteristically utilitarian fashion:

• In pharmacy, an AI-driven inventory system compares vendor pricing and autonomously reorders stock, boosting in-stocks above 98%, driving mid-teens script growth and improving margins while enabling lower retail prices.
• Similar AI tools are being rolled out in the gas business to optimize inventory and pricing and “ensure we’re always delivering the best value.”

On the data monetization front, Costco is building out a retail media capability on top of an existing alternative profit base that already includes travel, co-branded credit cards, and traditional trade marketing. Early experiments encompass digital campaigns, targeted merchandising value messages (MVMs) with CPG partners, and advertising on gas pumps.

Importantly for margin debate, management is framing retail media economics as primarily fuel for the flywheel—incremental dollars to reinvest in price rather than a standalone profit-maximization exercise. For national brands, that commitment to passing value back to members arguably amplifies the appeal of Costco’s media offering, as it can underpin incremental volume rather than just extract margin.

Real estate: disciplined expansion, creative formats

Costco continues to add square footage at a measured but meaningful pace. In Q1, it opened eight warehouses: four net new in the US, its third in France, and two additional Canadian business centers, plus one Canadian relocation. This brings the global estate to 921 warehouses.

For fiscal 2026, planned net new openings have been trimmed from 30 to 28, largely due to construction delays in Spain. Beyond this year, the company still targets 30 or more net openings annually, with roughly half in the US and half in international markets (Canada, Mexico, UK, Spain, Asia, Australia).

Several themes stand out:

• Improving economics of new boxes: The 2025 class of openings generated annualized first-year sales of $192 million per warehouse, up from $150 million two years ago. That reflects better site selection, quicker ramp-up, and rising brand awareness.
• Relocations as hidden growth: Five relocations are planned in FY26, three in the US, one in Canada, one in Taiwan. Management cited uplifts ranging from 20% for like-for-like upgrades to as much as 50–60% when gas is added or materially expanded, making relocations a capital-light lever for comp and margin expansion in mature markets.
• More creative formats: Costco is refurbishing and repurposing existing large boxes to access constrained markets and lower capex. Examples include converting an old hypermarket in Mulhouse, France, and refurbishing former home improvement warehouses for Canadian business centers. In Los Angeles’ Baldwin Hills, the company is partnering with developers on a mixed-use project that will put affordable housing above a Costco—an approach designed to overcome real estate scarcity in dense urban markets.

Capex was $1.53 billion in Q1 and is expected to total around $6.5 billion for FY26, funding new builds, relocations, warehouse remodels, depots, and digital infrastructure.

Cost inflation, tariffs and inventory discipline

On inflation, Costco continues to tread a middle path between passing through costs and defending its value proposition.

• Fresh and food/sundries experienced low- to mid-single-digit inflation on balance, with beef, seafood, and coffee more inflationary but eggs, cheese, butter, and produce seeing either lower inflation or outright deflation.
• Nonfoods saw low-single-digit inflation for the third straight quarter, mainly from gold and imported goods.

Tariffs remain a persistent headwind in selected categories, but buyers are compressing their impact through four strategies: changing sourcing countries, increasing US-made content, consolidating global buys to improve scale economics, and leaning into Kirkland where supply chains are more controllable.

In inventory, management has taken advantage of a more stable supply chain to unwind some of the elevated stock levels built during the COVID-era bottlenecks. That has improved working capital and reduced labour intensity in inventory handling without sacrificing in-stocks or sales—a quiet but material ballast for free cash flow and returns.

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For investors, Costco’s Q1 reads less like a story of dramatic pivot than one of relentless, incremental optimization: modest but broad-based margin expansion, still-robust membership economics, disciplined capex, and practical deployment of technology and AI. In a retail landscape littered with overpromises on digital reinvention, the company is instead bending data and systems in service of its original proposition: move more volume at the lowest possible price, and let the flywheel do the rest.