Costco Earnings: Margin Expansion and Membership Growth Shine

Key Morningstar Metrics for Costco Wholesale

• Fair Value Estimate

  : $650.00

• Morningstar Rating

  : ★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : Medium

What We Thought of Costco Wholesale’s Earnings

Costco Wholesale’s COST fiscal-second-quarter results included 9.1% net sales growth, 6.7% comparable sales growth (ex-fuel), and a diluted EPS of $4.58 (up 14.0%). Digitally enabled sales rose 22.6%, while gross margins expanded 30 basis points to 12.8% even as disinflation on essentials like eggs and dairy took hold.

Why it matters: We believe Costco’s expanding profitability and membership loyalty reinforce its wide moat. In our view, the 14% jump in membership fee income is robust, fueled by strong executive upgrades (9% increase in pricing) and a membership base that grew nearly 5%.

• While global traffic growth moderated to 3.1%, digital personalization is a bright spot. We are encouraged by new recommendation carousels driving over $470 million in e-commerce sales and app traffic surging 45%.
• We think the 20-basis-point dip in US and Canada renewals over the last two quarters (to 92.1%) will begin to stabilize over the midterm as Costco improves its targeted retention capabilities among digitally acquired younger members.

The bottom line: We plan to raise our $650 fair value estimate for wide-moat Costco by a low-single-digit percentage due to the time value of money. We view shares as more than 50% overvalued, with the price implying high-teens annual EPS growth that we see as unrealistic amid intense competition.

• Management guided full-year capital expenditures of $6.5 billion (2.2% of sales), which is in line with our estimates. In our view, this supports ongoing warehouse expansion, remodels, and digital infrastructure to enable further price reductions to drive top-line growth.

Coming up: Costco expects 28 net new locations in fiscal 2026, which is in line with our forecast. We anticipate the firm will utilize its sourcing agility, underpinned by a curated assortment and private-label penetration (33% of sales), to mitigate global tariffs as well as geopolitical volatility.