10-Q: Costco Wholesale Corp. Q3 2026 Earnings Report

Costco Wholesale Corporation reported a 12% increase in net sales for Q3 2026, reaching $69.15 billion, driven by comparable sales growth and new warehouse openings.

Summary

• Costco reported net sales of $69.15 billion for the 12 weeks ended May 10, 2026, a 12% increase compared to the same period last year.
• For the 36 weeks ended May 10, 2026, net sales increased by 10% to $203.37 billion.
• Comparable sales increased by 10% for the quarter and 8% year-to-date, driven by a 7% and 5% increase in average ticket and 2% and 3% increase in shopping frequency, respectively.
• Membership fee revenue grew by 11% to $1.37 billion for the quarter, attributed to new member sign-ups, fee increases, and Executive Membership upgrades.
• Net income for the quarter rose to $2.19 billion, or $4.93 per diluted share, up from $1.90 billion, or $4.28 per diluted share, in the prior year's quarter.
• The company opened four new warehouses in the third quarter, contributing to the overall sales growth.
• Capital expenditures for the first 36 weeks of 2026 were $4.23 billion, with a planned total of approximately $6.5 billion for fiscal year 2026.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive report, with robust sales growth, increased profitability, and continued expansion, indicating a healthy business performance.

Positives

• Net sales increased by 12% to $69.15 billion in the third quarter of 2026.
• Comparable sales grew by 10% in the third quarter, indicating strong performance in existing operations.
• Membership fee revenue increased by 11% to $1.37 billion, demonstrating member loyalty and value perception.
• Net income increased to $2.19 billion, with diluted EPS rising to $4.93 from $4.28 in the prior year.
• Digitally-enabled comparable sales saw a significant increase of 21% for the quarter.
• Gross margin percentage, excluding gasoline price inflation, increased by one basis point.
• SG&A expenses as a percentage of net sales, excluding gasoline price inflation, decreased by two basis points.
• The company continues to invest in growth with planned capital expenditures of approximately $6.5 billion for fiscal year 2026.

Negatives

• Gross margin percentage decreased by 21 basis points in the third quarter, primarily due to pressures in core merchandise categories.
• Renewal rates were negatively impacted by a higher number of memberships sold online, which tend to renew at a slightly lower rate.
• SG&A expenses as a percentage of net sales increased in Canadian and Other International segments.
• The company faces ongoing legal proceedings, although it does not believe any pending matter will have a material adverse effect on its financial position.

Risks

• Domestic and international economic conditions, including exchange rates, inflation, or deflation.
• Effects of competition and regulation.
• Uncertainties in the financial markets.
• Consumer and small business spending patterns and debt levels.
• Breaches of security or privacy of member or business information.
• Conditions affecting the acquisition, development, ownership, or use of real estate.
• Capital spending and actions of vendors.
• Rising costs associated with employees, including health-care costs and wages.
• Workforce interruptions.
• Geopolitical conditions, including tariffs and global conflicts.
• The ability to maintain effective internal control over financial reporting.
• Regulatory and other impacts related to environmental and social matters.
• Public-health related factors.
• Ongoing legal proceedings, including class action lawsuits related to wage and hour claims, privacy violations, and product labeling.

Future Outlook

The company plans to continue investing in new warehouse openings, remodeling existing locations, expanding its depot network, and developing its digitally-enabled businesses. Capital expenditures are expected to be approximately $6.5 billion for fiscal year 2026, financed by cash from operations and existing cash reserves. The company believes its liquidity and capital resources will be sufficient for foreseeable future requirements.

Management Comments

• Management believes that offering low prices on a limited selection of products, combined with operating efficiencies, enables profitability at significantly lower gross margins than most other retailers.
• The company's philosophy is to provide members with quality goods and services at competitive prices, focusing on maintaining a perception of pricing authority.
• Generating comparable sales growth is a priority, achieved through increasing shopping frequency and average ticket size.
• The membership format is integral to profitability, designed to reinforce member loyalty and provide continuing fee revenue.
• Controlling costs is heavily emphasized, with a focus on maintaining compensation levels that are better than the industry average to reduce turnover and increase productivity.

Industry Context

StockSavvy.ai notes that Costco's consistent growth in net sales and comparable store sales, alongside a strong increase in membership revenue, highlights its resilience and competitive advantage in the retail sector, particularly in an environment with fluctuating economic conditions and evolving consumer spending habits.

Comparison to Industry Standards

• Costco's comparable sales growth of 10% for the quarter and 8% year-to-date exceeds the typical growth rates seen in the broader retail sector, which often hovers in the low single digits.
• The company's membership fee revenue growth of 11% demonstrates a strong ability to retain and attract members, a key differentiator compared to retailers without a membership model.
• Costco's operating income margin of approximately 4% (Operating Income / Total Revenue) is a testament to its efficient operational model, which is generally lower than specialty retailers but competitive within the warehouse club segment.
• The company's investment in capital expenditures ($6.5 billion planned for FY2026) indicates an aggressive expansion strategy, outpacing many competitors who may be more conservative in their physical store growth.

Legal Proceedings

• Class action lawsuits alleging wage and hour violations in California and Washington.
• Private Attorneys General Act (PAGA) actions in California related to alleged labor code violations.
• Class action lawsuits alleging privacy law violations stemming from pixel trackers on Costco.com.
• Class actions alleging Kirkland Signature tequilas are mislabeled regarding agave content.
• Class actions seeking refunds for tariffs passed on to members through higher prices.

Stakeholder Impact

• Shareholders: Positive impact due to increased net income, EPS growth, and continued share repurchases and dividends.
• Employees: Continued focus on competitive wages and benefits, aiming for reduced turnover and increased productivity.
• Customers: Benefit from consistent value pricing and a wide selection of goods.
• Suppliers: Continued strong demand for products, with opportunities for early payment discounts.
• Creditors: Stable financial position and strong operating cash flows support debt obligations.

Next Steps

• Continue opening new warehouses and remodeling existing locations.
• Expand the depot network and further develop digitally-enabled businesses.
• Manage capital expenditures, with approximately $6.5 billion planned for fiscal year 2026.
• Continue to focus on providing members with quality goods and services at competitive prices.
• Monitor and manage legal proceedings.

Key Dates

Recommendation

While the results are strong and indicate continued operational excellence, the stock price may already reflect much of this positive performance. The company's consistent execution warrants a 'hold' rating, with potential for upgrades if further catalysts emerge or if the stock experiences a significant pullback.

Keywords

Costco, Wholesale, Retail, 10-Q, Quarterly Report, Financial Results, Net Sales, Comparable Sales, Membership Fees, Net Income, EPS, Capital Expenditures, Warehouse Operations, E-commerce