Costco issues a lukewarm quarter, but delivers on the metric that matters most

Costco Wholesale had a good quarter on Thursday evening, hitting enough of the membership numbers we determined were significant before press. According to estimates compiled by LSEG, total revenue in the third quarter of fiscal 2026 rose 11.6% year over year to $70.53 billion; This was above Wall Street expectations of $69.81 billion. LSEG data showed adjusted earnings per share (EPS) rose 15.2% to $4.93 in the 12 weeks ending May 10, in line with expectations. Membership fee revenue rose 10.7% to $1.37 billion in the quarter, slightly beating FactSet's estimates of $1.36 billion. US/Canada membership renewal rate increased. COST YTD Mount Costco YTD The stock wasn't trading much outside of business hours. Weighing moderate pressure against the benefits to Costco of a consumer forced to seek value, we maintain our equivalent 2 rating and $1,100 per share price target. All in all, it wasn't the best quarter, but it was far from bad. The number of paid members remained underwhelming at 82.9 million, but was up 4.1% year over year. However, stability in membership renewal rates should help support the stock, which has fallen about 9% since hitting a 52-week high of just over $1,096 on May 19. Traffic growth has slowed sequentially, but growth in comparable ticket size has accelerated as consumers continue to seek the best-in-class value that Costco can provide thanks to its membership, bulk-sale warehouse model and record demand at gas pumps. This means people are doing a little more of their shopping at Costco these days. On the post-earnings call, CEO Ron Vachris said it had record gas sales as prices hovered around four-year highs due to supply disruptions due to the Iran war. "All three, four-week fiscal periods in the quarter set consecutive records for all-time company sales volume, with the last five weeks of the quarter being our five highest volume weeks ever," the CEO said. Demand was so strong that some high-traffic Costco locations required multiple daily gas deliveries. We were also pleased to note that Vachris said many members were first-time Costco gas buyers this quarter. He added: “We believe this will further increase the loyalty of these members in the future, as members who use our gas stations generally spend more with us at the depot.” When prices are high, drivers flock to Costco because the company sells gas at a discount. Once they've filled up, they're more likely to poke their heads into storage spaces to do a little unplanned shopping. Total comparable sales increased 9.8% in the fiscal quarter; This was a significant acceleration from the 7.4% growth in the previous quarter. Comparable sales, or benchmarks, are an important metric for the retail industry that adjusts for new store openings and closings to ensure fair year-over-year comparisons. The payments were driven by a 2.4% increase in traffic and a 7.3% increase in ticket size. It sounds pretty fantastic, but unfortunately that's not the whole story. On an adjusted basis, which excludes the effects of foreign exchange and gasoline prices, ticket growth slowed slightly to 6.6% and ticket size increased by only 4.2%. Digitally enabled comparable sales increased 21.5%, or 20.8%, on an adjusted basis as e-commerce site and app traffic increased 37% compared to the prior-year period. Gross profit margin decreased 17 basis points annually to 11.02%. However, excluding the impact of gas prices, there was actually an increase of 1 basis point. Operating margins improved compared to the same period last year. While paid memberships were generally missed, executive level memberships, which cost $130 per year compared to the $65 basic membership fee, increased by 9.6% annually to 41.2 million, from 40.4 million in the previous quarter. The executive tier launched in China this quarter, and management noted strong early adoption. As for renewals, the worldwide membership renewal rate has remained steady at 89.7%. However, we were pleased to see a slight increase in the US/Canada region renewal rate; It returned to 92.2%, levels seen in the first fiscal quarter, before falling to 92.1% in the second quarter. The renewal rate has come under pressure recently due to the increase in online membership registrations. Members who sign up online tend to churn at a higher rate than those who sign up in store. But efforts to increase renewal rates in the online group through targeted digital communications and retention strategies have proven effective enough to more than offset the impact of this change in membership mix, CFO Gary Millerchip said during the call. Finally, Costco opened four new warehouses this quarter and plans to open 12 more in the last (current) quarter of fiscal 2026. While the total number of openings planned this year is 26, it is lower than the team's target of 28 openings in the previous quarter. Two of those openings have been postponed until fiscal 2027. In the coming years, Costco will increase the number of openings worldwide to more than 30 per year. Costco currently has 928 locations worldwide, most in the United States, Canada and Mexico. In addition to North America, the company also has representatives in Europe, Asia and Australia. Why we have it Costco is the world's best-run retailer, with a business model focused on offering members a relatively small selection of products at unbeatable prices. It's been successful for decades, but high inflation in recent years has really burnished the company's value-focused ethos. Competitors: BJ's Wholesale, Walmart, owner of Amazon Clubmate Last purchase: September 30, 2025 Start date: January 27, 2020 (Jim Cramer's Charitable Trust is long in cost. See here for a full list of stocks.) 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