Costco's 9.8% Comp Passes the Smell Test-But Can It Justify a Premium Stock?

Costco delivered another strong quarter, but the valuation question remains open

This quarter passes the basic quality test. It does not fully settle the case for paying a premium price today.

The core numbers are still impressive. The quarter ended May 10, 2026, comparable sales rose 9.8%, digitally enabled comp growth was 21.5%, and paid membership growth was 4.1%. That combination of sales momentum, e-commerce adoption, and member retention is exactly what investors want to see in a durable consumer business.

The real debate is whether that operating strength still deserves a rich multiple. The good news is that the growth shows up in traffic, digital behavior, and membership counts. The caution is that a strong quarter and a compelling stock at today's price are not the same thing. Investors still need to separate durable moat performance from temporary timing benefits.

Costco's operating engine looks broad and mostly durable

Growth was spread across markets, not driven by one outlier

If you look past the headline number, the sales strength still looks broadly based. Costco posted 7.9% comparable sales growth in the first 36 weeks, with 6.6% adjusted comp after removing gasoline and FX effects. More importantly, this was not a one-market show: U.S. comp rose 7.1%, Canada comp rose 9.1%, and Other International comp rose 11.0%. That kind of geographic breadth usually points to a business with real pull, not one relying on a single region or temporary tailwind.

Renewals remain the cleanest proof of customer loyalty

The best scoreboard is still renewal behavior. Costco's 92.2% U.S. and Canada renewal rate remains very high, and it improved by 10 basis points sequentially. Worldwide renewal rates held at 89.7%. Those numbers suggest members are still getting their money's worth.

High-tier members also remain engaged. Paid executive membership growth reached 9.6%, which reinforces the idea that Costco's most valuable customers are still leaning in.

Margin pressure is worth watching, but it does not break the model

Some investors will focus on the margin read-through, and that is reasonable. Gross margin was 11.04%, down 21 basis points, and core-on-core margins decreased 9 basis points. That deserves monitoring. But Costco's model has never depended on luxury-store margins. If low prices keep members coming back and paid memberships continue to grow, the model can still produce strong cash generation even when near-term margins soften.

Fee quality and timing matter more than another growth headline

What the call added was not another growth headline. It was more clarity on how clean some of that strength really is.

Membership fee growth looks healthier than it first appeared

Membership fee income rose 10.7%, which is strong. Management also said only about a quarter of that growth came from the prior U.S. and Canada membership fee increase. That matters because it suggests the fee engine is not relying entirely on one past rate step. For a premium business, that distinction matters.

Tariff-refund timing is the valuation hinge

The more nuanced issue is timing. Management indicated tariff-refund processing could span the next 2-3 months. If some of that benefit arrives later, part of the comp support may be front-loaded into future periods rather than fully reflected now. That does not make the quarter bad. It just makes the quarter less clean as a benchmark for investors paying up for durability.

Pricing discipline still looks intact

Management was also direct about margin pressure in fresh, food, and sundries. That honesty matters. It suggests Costco is still prioritizing the member price experience rather than masking weakness.

Watchlist stance: good business, selective on price

Keep Costco on a buy-only watchlist rather than a chase list. The business still looks like a high-quality operator, but the next few signals matter before assuming the current multiple is justified.

What to watch next

• Whether tariff-refund timing changes expectations for the coming quarters
• Whether fee growth stays healthy without leaning too heavily on past fee increases
• Whether renewal rates remain firm
• Whether digital engagement continues to support enabled sales
• Whether margin pressure stays contained enough to keep the low-margin, high-volume model intact

If those signposts hold, the moat becomes easier to pay for. If they wobble, patience is still the rational move.