Costco Beat Earnings Again — and the Market Still Isn’t Impressed

Costco’s fiscal first-quarter results landed exactly where investors expect this company to live: quietly beating expectations, reinforcing its reputation as one of the most resilient retailers in the market, and simultaneously reminding everyone why the stock rarely looks cheap. The quarter did little to change the long-term narrative—Costco remains a best-in-class operator with extraordinary member loyalty—but it did sharpen the debate around growth normalization, tariffs, and how much upside is left at a premium valuation.

On the headline numbers, Costco delivered a clean beat. Revenue came in at $67.31 billion, slightly ahead of the $67.14 billion consensus and up roughly 8.2% year over year. Earnings per share of $4.50 topped expectations of $4.27 and rose meaningfully from $4.04 a year ago, with adjusted earnings growth running in the low-to-mid teens once tax-related items are excluded. Comparable sales increased 6.4% globally, or about 7.1% when excluding gas prices and foreign exchange, a solid result given tough comparisons and a cooling inflation backdrop. Digitally enabled sales surged more than 20%, reinforcing that Costco’s omnichannel strategy continues to scale without undermining its warehouse-first model.

The margin picture was consistent with Costco’s long-standing philosophy. Gross margin came in at 11.32%, up modestly year over year, while SG&A edged slightly higher, driven in part by rising healthcare costs. There was no attempt by management to chase margin expansion aggressively, which is entirely on brand. Costco continues to prioritize price leadership and volume over squeezing incremental margin, and this quarter reinforced that discipline. Importantly, there was no sign of margin erosion tied to promotional activity, suggesting Costco is navigating a competitive retail environment without sacrificing profitability.

From a consumer standpoint, the quarter painted a reassuring picture. Traffic increased about 3.1% globally, and average ticket size rose roughly 3.2%, indicating that growth is being driven by both higher visit frequency and slightly higher spend per trip—not simply price inflation. Management was clear that they are not seeing meaningful stress in the consumer, despite persistent narratives around inflation fatigue. Gas prices were modestly deflationary, which mechanically weighed on reported growth, but underlying demand trends remained healthy. Anecdotes from the call reinforced that message: record food court sales on Halloween, record U.S. e-commerce volume on Black Friday, and massive bakery volumes heading into Thanksgiving all point to a consumer that is still engaged and value-seeking rather than retrenching.

That value-seeking behavior is exactly where Costco continues to shine. In an environment where consumers across income brackets are increasingly price conscious, Costco’s model—low margins, curated SKUs, and trusted pricing—remains uniquely advantaged. Management emphasized ongoing market share gains, particularly in non-food categories such as pharmacy, small appliances, apparel, tires, and jewelry, which all posted double-digit growth year over year. While growth rates have cooled compared to last year’s unusually strong non-food surge, the normalization appears more mathematical than fundamental.

Tariffs were one of the more nuanced topics on the call. Management acknowledged that tariff uncertainty and logistical disruptions, including port-related issues, contributed to month-to-month “bumpiness” in sales trends. Costco’s scale and sourcing flexibility allow it to mitigate some of these pressures—through supplier negotiations, private-label Kirkland Signature, and shifts in sourcing—but not eliminate them entirely. The company emphasized that tariffs are being managed rather than ignored, and while they may create noise in reported results, they are unlikely to derail the broader operating model. Notably, investors are also watching the company’s ongoing IEEPA-related tariff litigation, which could represent upside optionality if refunds materialize, though management did not frame this as part of near-term guidance.

Membership metrics remain the core pillar of the Costco story, and this quarter offered both reassurance and a watch point. Membership fee income rose 14% year over year to $1.329 billion, driven by continued member growth and the benefit of last year’s fee increase in the U.S. and Canada. Total paid members increased 5.2% to 81.4 million, while executive memberships grew 9.1% year over year to nearly 40 million. Renewal rates dipped modestly—down about 10 basis points sequentially to 92.2% in the U.S. and Canada and 89.7% globally—but management framed this as a function of higher digital sign-ups, which historically renew at lower rates initially. Importantly, they expressed confidence that renewal rates will stabilize and improve as digital engagement tools mature.

Looking ahead, Costco’s outlook is deliberately steady rather than flashy. The company does not provide formal full-year guidance, but management reiterated plans to open roughly 28 net new warehouses in fiscal 2026, with a longer-term target of 30-plus openings per year. International expansion remains a key growth vector, particularly in underpenetrated markets such as France and Sweden, where early warehouse openings have seen strong member uptake. Capital expenditures are expected to run around $6.5 billion for the year, supporting new warehouses, remodels, and technology investments.

Technology continues to play a growing, if understated, role. Digital membership scanning, app enhancements, and AI-driven inventory tools—particularly in pharmacy and fuel—are improving efficiency and member experience without changing the essence of the Costco model. E-commerce growth north of 20% shows that Costco can participate meaningfully in digital retail without sacrificing in-warehouse traffic, a balance many peers struggle to achieve.

From a valuation perspective, this is where the conversation becomes more complicated. Even after some multiple compression over the past year, Costco still trades near the high end of the market, with a P/E approaching 50. That valuation reflects extraordinary business quality, consistency, and loyalty from both customers and shareholders—but it also limits near-term upside. The quarter did nothing to undermine the long-term bull case, but it also did not provide a catalyst for multiple expansion.

For investors, the key things to watch going forward are straightforward. First, renewal rates—particularly among digitally acquired members—need to stabilize as management expects. Second, tariff-related volatility bears monitoring, especially if global trade frictions intensify. Third, the pace of international warehouse productivity will be critical as Costco leans more heavily on expansion outside North America. Finally, any signs of sustained pressure on traffic would be an early warning signal—but this quarter showed no such stress.

Bottom line: Costco delivered another strong, reliable quarter that reinforced its status as a premier retail franchise. The business continues to perform exceptionally well, the consumer looks healthy, and execution remains disciplined. The stock, however, already reflects much of that excellence, suggesting future returns are more likely to be steady and incremental than explosive.