10-K: Costco Reports Strong FY2026 Results Amid Growth

Costco Wholesale Corporation announced robust financial results for its fiscal year ended August 30, 2026, showcasing a 10% increase in net sales and a 14% rise in net income.

Summary

• Costco Wholesale Corporation reported a 10% increase in net sales for fiscal year 2026, reaching $297.2 billion, driven by comparable sales growth and new warehouse openings.
• Net income saw a significant 14% increase, totaling $9.2 billion, with diluted earnings per share rising to $20.76.
• The company opened 25 net new warehouses in fiscal year 2026, expanding its global footprint.
• Membership fee revenue grew by 11% to $5.9 billion, indicating strong member loyalty and retention.
• Costco maintained a strong balance sheet with $21.3 billion in cash and cash equivalents and short-term investments.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive report, reflecting consistent growth, robust financial health, and effective operational management.

Positives

• Net sales increased by 10% to $297.2 billion, demonstrating strong top-line growth.
• Net income increased by 14% to $9.2 billion, indicating improved profitability.
• Diluted earnings per share rose to $20.76, up from $18.21 in the prior year.
• Membership fee revenue increased by 11% to $5.9 billion, reflecting sustained member engagement.
• The company opened 25 net new warehouses, contributing to overall growth.
• Comparable sales increased by 8% company-wide.
• Executive members accounted for approximately 75.2% of worldwide net sales.
• Member renewal rates remained high at 92.3% in the U.S. and Canada and 89.8% worldwide.

Negatives

• Gross margin percentage decreased by three basis points to 11.09%, primarily due to a shift in sales mix towards warehouse ancillary and other businesses, which generally have lower gross margins.
• The company experienced a $500 million impact from IEEPA tariffs, though a portion was recovered through refunds.

Risks

• High dependence on U.S. and Canadian operations, which comprised 86% and 83% of net sales and operating income, respectively.
• Potential for new warehouses to cannibalize sales from existing locations.
• Difficulties in acquiring suitable locations for new warehouses due to land use regulations and community opposition.
• Disruptions in merchandise distribution, packaging, or manufacturing facilities could adversely affect sales and member satisfaction.
• Failure to effectively manage cybersecurity threats and data privacy regulations.
• Increased competition from other retailers, including those with advanced technology capabilities and faster adoption of AI.
• General economic factors, both domestically and internationally, could adversely affect business.
• Fluctuations in foreign-exchange rates may adversely affect results of operations.

Future Outlook

The company plans to open up to 33 new warehouses, including five relocations, in fiscal year 2027, with capital expenditures expected to be approximately $7.5 billion. Management believes its liquidity and capital resources will be sufficient for foreseeable future requirements.

Management Comments

• "We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales."
• "Our philosophy is to provide our members with quality goods and services at competitive prices."
• "Our net sales and gross margin are influenced in part by our merchandising and pricing strategies in response to cost increases."
• "Our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly merchandise costs and SG&A expenses, can have substantial impacts on net income."

Industry Context

StockSavvy.ai notes that Costco's performance aligns with broader retail trends of sustained consumer demand for value-driven offerings, even amidst inflationary pressures. The company's continued expansion and strong membership growth highlight its resilience and competitive positioning against both traditional retailers and e-commerce giants.

Comparison to Industry Standards

• Costco's net sales growth of 10% in FY2026 outpaces the general retail sector's growth, which has seen varied performance across different segments.
• The company's operating income growth of 12.5% (from $10.383 billion in 2025 to $11.685 billion in 2026) demonstrates strong operational efficiency compared to many competitors who struggle with margin pressures.
• Membership renewal rates of 92.3% in the U.S. and Canada and 89.8% worldwide are exceptionally high and significantly exceed industry averages for subscription-based models.
• The average employee wage of approximately $33.00 per hour in the U.S. is notably higher than the retail industry average, contributing to high employee retention rates (94% for employees with over one year of service in the U.S. and Canada).
• Costco's strategy of offering a limited selection of high-quality, nationally-branded and private-label products at low prices continues to be a successful differentiator against competitors like Walmart (Sam's Club) and BJ's Wholesale Club.

Management Changes

Legal Proceedings

• Class action lawsuit alleging failure to pay minimum wage, overtime, and other labor law violations in California (Martin Reyes v. Costco Wholesale Corp.).
• Private Attorneys General Act (PAGA) actions alleging various violations of California Labor Code.
• Class action lawsuits alleging privacy law violations stemming from pixel trackers on Costco.com.
• Class actions alleging Kirkland Signature tequila products were mislabeled as 100% Agave.
• Class actions seeking refunds of IEEPA tariffs passed on to members.
• Class action alleging misleading subject lines in promotional emails.
• Ongoing defense in opioid litigation matters.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and a 13% increase in quarterly cash dividend.
• Employees: Continued investment in competitive compensation and benefits, with an average hourly wage of approximately $33.00 in the U.S. and a high retention rate.
• Members: Continued focus on providing value through low prices and high-quality merchandise; potential for increased value through investment of tariff refunds.
• Suppliers: Continued reliance on a diversified supply chain; potential for increased demand due to new warehouse openings.

Next Steps

• Continue opening new warehouses, with plans to open up to 33 new warehouses, including five relocations, in fiscal year 2027.
• Invest approximately $7.5 billion in capital expenditures during fiscal year 2027.
• Continue to invest a majority of IEEPA tariff refunds in increased value for members.
• Continue to monitor and manage cybersecurity risks and data privacy regulations.
• Maintain focus on providing members with quality merchandise at competitive prices.

Key Dates

Recommendation

Costco demonstrates consistent operational excellence and financial strength, with robust sales and earnings growth. However, the slight decrease in gross margin percentage and ongoing legal proceedings warrant a 'hold' recommendation, suggesting investors should monitor these factors while acknowledging the company's strong fundamentals.

Keywords

Costco Wholesale, Annual Report, Form 10-K, Net Sales, Net Income, Membership Fees, Comparable Sales, Warehouse Operations