Costco Wholesale reported strong first quarter fiscal 2026 results, with net sales increasing 8.2% year-over-year to $65.98 billion and comparable sales rising 6.4%. Earnings per share reached $4.52, up 11.9% from the prior year, or 13.6% excluding discrete tax benefits. Membership income grew 14% to $1.329 billion, driven by a fee increase and robust growth in executive memberships, which rose 9.1% to 39.7 million. The company opened eight new warehouses, bringing the total count to 921, and highlighted significant productivity gains from technology investments, including AI-driven inventory management and checkout scanning systems. Despite a slight miss on SG&A leverage due to healthcare costs, management maintained a confident outlook, raising full-year Capex guidance to approximately $6.5 billion to support expansion and digital initiatives.
| Metric | Value | Change |
|---|---|---|
| Net Sales | $65.98 billion | +8.2% |
| Comparable Sales | 6.4% | N/A |
| EPS (Diluted) | $4.52 | +11.9% |
| Membership Income | $1.329 billion | +14.0% |
| Executive Members | 39.7 million | +9.1% |
| Digital Comp Sales | 20.5% | N/A |
Costco is aggressively integrating technology to enhance the member experience and drive operational efficiency. The deployment of AI in pharmacy inventory management improved in-stocks to over 98%, while prescanning technology boosted checkout speeds by 20% in early adopter warehouses. Management emphasized that technology is a tool to strengthen core fundamentals, aiming to drive sales and lower prices rather than tech for tech's sake.
The company is pursuing a flexible and creative real estate strategy to sustain long-term growth. While delays in Spain reduced the fiscal 2026 new unit guidance to 28, management reaffirmed a goal of 30+ openings annually in future years. Innovative projects, such as building housing above a warehouse in Los Angeles and converting hypermarkets in France, demonstrate a capital-efficient approach to entering dense markets.
Costco continues to leverage its membership model for recurring revenue and loyalty, with Executive memberships growing 9.1% year-over-year. The company is actively addressing the slight decline in renewal rates among digital sign-ups through targeted communications. The introduction of benefits like extended operating hours and Instacart credits for executive members is successfully driving upgrades and engagement.
Pricing power remains a core competitive advantage, as evidenced by Costco's ability to navigate a complex inflationary environment. Despite rising costs in commodities like beef and coffee, the company is lowering prices on key items like bacon and pot pies, reinforcing its 'first to lower prices' mantra. The Kirkland Signature brand, offering 15-20% value over national brands, continues to outpace overall sales growth.
Costco failed to achieve SG&A leverage in the quarter, with the reported rate worsening by 1 basis point. This was attributed to higher-than-expected healthcare costs and a one-time tax assessment. While wage investments and extended hours were offset by productivity gains, the rising healthcare trend represents a persistent structural headwind to margin expansion if sales growth slows.
Renewal rates dipped 10 basis points to 92.2% in the US/Canada and 89.7% worldwide. Management acknowledged that digital sign-ups renew at lower rates than warehouse sign-ups. While targeted communications are showing early success, the company warned that renewal rates may continue to decline slightly over the next few quarters, signaling a potential shift in member loyalty dynamics.
Nonfood comparable sales decelerated to mid-single digits, cycling strong prior-year sales of gold and gift cards. While management noted market share gains, the slowdown in big-ticket discretionary categories could indicate consumer fatigue or sensitivity to tariffs, requiring continued heavy investment in value propositions to maintain traffic.
The revision of fiscal 2026 new unit openings down to 28 due to delays in Spain highlights execution risks in international development. While management remains confident in the long-term 30+ unit goal, reliance on complex, creative real estate solutions introduces construction and regulatory risks that could delay future openings.
Overall: Management conveyed a tone of confident pragmatism, emphasizing operational discipline and a clear long-term vision. They were direct in addressing challenges such as healthcare costs and renewal rates, while articulating a data-driven strategy for technology integration and expansion.
Confidence: HIGH - Management provided specific metrics to validate their strategies (e.g., 20% checkout speed improvement, 98% pharmacy in-stocks) and reaffirmed long-term growth targets like 30+ annual store openings despite short-term delays.
Approximately $6.5 billion for the full year.
28 net new openings for fiscal year 2026, with a goal of 30+ in future years.
Potential for a slight decline over the next few quarters due to digital member mix.
Hedging & Uncertainty: Management utilized hedging language primarily regarding forward-looking macro factors and specific timing of operational improvements. Phrases like 'we think there's a good horizon,' 'expect to continue,' and 'possibility those costs could continue' were used to frame uncertainty around healthcare and expansion timelines. However, they were direct regarding past performance ('did a great job,' 'very positive'). The hedging suggests caution about external factors like tariffs and inflation but confidence in internal execution.
We will never succumb to not being the best price and driving prices down for our members. That's what Costco is known for. - Ron Vachris, CEO
We feel really strong about our future expansion. - Ron Vachris, CEO
Our goal is to continue to make sure we're delivering on that value, quality, and newness. - Gary Millerchip, CFO
We're in the early innings... of retail media. - Gary Millerchip, CFO
We see many opportunities that are really business driven, and tangible have great tangible business value for us. - Ron Vachris, CEO
Analyst Sentiment: Analysts were highly engaged, asking detailed questions about the sustainability of growth drivers, specifically the impact of technology on margins and the mechanics behind membership renewal rates. There was a focus on the 'new' Costco under Ron Vachris, specifically regarding speed and tech adoption.
Management Responses: Management was responsive and transparent, providing granular details on operational metrics (e.g., specific uplift percentages from relocations, digital traffic stats). They deflected slightly on specific future macro impacts but provided clear logic for their strategic choices.
Technology and AI implementation in operations and member experience.
Membership renewal rate dynamics and the impact of digital sign-ups.
Real estate pipeline and creative development strategies.
SG&A leverage and the impact of healthcare costs.
Nonfood sales trends and inflation.
Costco continues to demonstrate why it is a premier retail franchise, delivering robust sales growth and market share gains regardless of the macro environment. The Q1 results underscore the strength of its membership model and pricing power, with EPS growing 13.6% ex-items. While near-term margins face pressure from healthcare costs and heavy investment in Capex ($6.5B), these investments are directed toward high-return areas like digital, AI, and real estate expansion that secure long-term moats. The slight dip in renewal rates is manageable through targeted engagement, and the '30 plus' store opening goal remains intact for the long term. The company's ability to integrate technology to drive productivity while lowering prices for members creates a virtuous cycle that should drive sustained outperformance.
The consumer remains resilient but value-conscious. Traffic increased 3.1%, and basket size grew 3.2%, indicating volume is not just inflation-driven. Strong sales in 'newness' items and travel (record Cyber Monday) suggest a release of pent-up demand for experiences and quality goods.
Costco is navigating a bifurcated inflation landscape. While commodities like beef and coffee are seeing inflation, deflation in eggs and cheese is allowing Costco to lower prices (e.g., bacon, pot pie). This dynamic allows Costco to reinforce its value proposition.
Management noted that tariffs are impacting the assortment, forcing a shift in sourcing (changing country of origin) and a reduction in SKUs. This adds complexity to the supply chain but highlights Costco's ability to adapt.