1. Introduction: Quarterly Performance Overview
This report provides a comprehensive assessment of Costco Wholesale Corporation's performance during the first quarter of fiscal year 2026, which concluded on November 23, 2025. By synthesizing key financial results, membership trends, and strategic operational initiatives, this summary offers a clear view of the company's position and momentum. The quarter was characterized by robust top-line growth, strong profitability, and significant progress in digital and physical expansion efforts.
The premier financial highlights from the quarter are summarized below, demonstrating broad-based strength across the business.
Metric | Q1 FY2026 Result |
$65.98 billion (+8.2% YoY) | |
Total Company Comparable Sales | +6.4% |
$2,001 million (+11.3% YoY) | |
$4.50 (+11.4% YoY) | |
Digitally-Enabled Comparable Sales | +20.5% |
These results underscore a period of disciplined execution and successful strategic investments, which will be explored in the detailed financial analysis that follows.
2. Detailed Financial Analysis
Analyzing Costco's core financial health is essential to understanding the sustainability of its growth. This section deconstructs the company's revenue streams, sales composition, and profitability drivers to evaluate the underlying strength of its Q1 performance and the effectiveness of its operational management.
2.1. Revenue and Sales Growth
Costco's top-line performance was a clear highlight of the quarter, with net sales increasing by a notable 8.2% year-over-year to reach $65.98 billion. This growth was driven by consistent increases in both customer traffic and average transaction size. Worldwide, shopping frequency (traffic) rose by 3.1%, while the average ticket size grew by 3.2%.
A more precise indicator of underlying merchandise sales momentum is found by isolating core retail activity. Excluding volatile gas sales entirely and adjusting for the impact of foreign exchange, comparable sales were a robust 7.1%, demonstrating fundamental strength in the company's merchandising and value proposition.
The company's comparable sales growth across its key segments is detailed in the following table:
Region/Segment | Comparable Sales (%) | Adjusted Comparable Sales (%)* |
U.S. | 5.9% | 5.9% |
Canada | 6.5% | 9.0% |
Other International | 8.8% | 6.8% |
Total Company | 6.4% | 6.4% |
Digitally-Enabled | 20.5% | 20.5% |
Excluding the impacts from changes in gasoline prices and foreign exchange.
2.2. Profitability and Margin Evaluation
The company's bottom-line results were equally impressive, with net income rising to $2,001 million, yielding a diluted earnings per share (EPS) of $4.50. This performance reflects effective margin management and operational efficiency. Notably, the reported figures include a tax benefit related to stock-based compensation of 72 million (0.16 per share), compared to a larger 100 million benefit (0.22 per share) in the prior-year period. Excluding these discrete tax items from both years, both net income and diluted EPS demonstrated an underlying growth rate of 13.6%, highlighting the fundamental strength of the core business.
Analysis of the margin components shows that the reported gross margin rate was 11.32%, an increase of 4 basis points year-over-year. Core-on-core margins improved by a robust 30 basis points, primarily driven by supply chain improvements and higher penetration of the company's proprietary Kirkland Signature brand. However, this underlying improvement was partially offset by changes in the overall sales mix.
Selling, General, and Administrative (SG&A) expenses were well-managed, reported at a rate of 9.60%. Productivity gains from technology investments successfully offset wage increases, though this positive leverage was counteracted by higher-than-expected healthcare costs and a one-time charge related to a tax assessment for prior years.
These strong financial results are directly supported by the company's foundational membership model, which serves as its primary profit driver.
3. Membership: The Core Business Engine
The membership program remains the central pillar of Costco's business model, fostering exceptional customer loyalty and providing a stable, high-margin revenue stream. The health and growth of this membership base are leading indicators of the company's long-term success. This section evaluates the performance of the membership program and its direct contribution to Costco's results.
3.1. Membership Fee Income
In the first quarter, membership fee income grew to $1.329 billion, marking a significant 14.0% increase year-over-year. This growth rate remained consistent at 14.0% after adjusting for foreign exchange fluctuations. The increase was driven by two key factors: the membership fee increase implemented in the U.S. and Canada in September 2024 accounted for a little less than half of the growth. The remaining underlying growth of 7.3% was fueled by a combination of new member sign-ups and a continued trend of members upgrading to the higher-tier Executive membership.
3.2. Key Membership Metrics and Trends
Costco's membership base continued its steady expansion, demonstrating the enduring appeal of its value proposition.
- Total Paid Members: 81.4 million (+5.2% YoY)
- Total Cardholders: 145.9 million (+5.1% YoY)
- Paid Executive Memberships: 39.7 million (+9.1% YoY)
- Penetration of Sales to Executive Members: 74.3%
- Worldwide Renewal Rate: 89.7%
- U.S. & Canada Renewal Rate: 92.2%
The penetration of sales to Executive members is a powerful indicator of member loyalty and a primary driver of sales volume. That nearly three-quarters of all sales come from this premium membership tier validates the success of the upgrade strategy, as these members are the company's most engaged cohort. The company's renewal rates saw a modest decline of 10 basis points from the previous quarter, which management attributes to new online members renewing at a slightly lower rate than warehouse sign-ups.
The value delivered to this loyal member base is continuously enhanced by strategic initiatives designed to drive future growth and improve the shopping experience.
4. Strategic Initiatives and Operational Execution
Sustaining market leadership requires relentless strategic execution. Costco's Q1 performance reflects focused efforts to maintain its competitive advantage through digital transformation, disciplined physical expansion, and a dynamic merchandising strategy that consistently delivers value.
4.1. Digital Transformation and E-commerce
Costco's digital channel delivered exceptionally strong growth, with digitally-enabled comparable sales increasing by 20.5%. This growth was driven by strong performance in key categories including Pharmacy, Gold/Jewelry, Tires, Small Electrics, Apparel, and Majors. This performance aligns with the CEO's vision to create a seamless shopping experience that is "easier, faster, and more personal." The company is successfully using technology to strengthen its core business fundamentals, with tangible results already evident.
- In-Warehouse: The implementation of pre-scanning technology has improved checkout speeds by up to 20% in early-adopter warehouses, enhancing member experience and boosting productivity.
- Online: The launch of personalization capabilities has delivered a positive sales lift. This, combined with other enhancements, drove e-commerce site traffic up 24%, app traffic up 48%, and the average order value up 13%.
- AI Integration: Artificial intelligence is being practically applied to strengthen the business model. In the pharmacy, an AI-powered inventory system has improved in-stock levels to over 98%, and similar AI tools are now being deployed in the gas business to optimize inventory management.
4.2. Physical Footprint Expansion
Costco continued to expand its physical presence, opening 8 new warehouses in the first quarter and bringing its total worldwide count to 923 locations. The company's future expansion strategy includes a revised plan for 28 net new openings in fiscal year 2026, with an ambitious goal of 30+ openings annually in subsequent years. The effectiveness of this expansion is improving, as fiscal year 2025 openings are generating an annualized $192 million per warehouse in their first year, a significant increase from the $150 million generated by new warehouses opened just two years earlier.
To support this growth, the company is employing creative real estate strategies, including converting a former Hypermart in France and refurbishing previously occupied home improvement warehouses to serve as new Canadian Business Centers, demonstrating a flexible and capital-efficient approach.
4.3. Merchandising Strategy and Product Highlights
Costco's merchandising teams delivered another strong quarter, achieving market share gains across most departments. Fresh food sales grew in the mid-to-high single digits, while non-food sales increased by mid-single digits. The company continues to drive excitement and traffic through "newness," with new national brand partnerships like Gap and Ulta gift cards, Vera Bradley apparel, and Upper Deck trading cards, alongside on-trend items like Dubai chocolate and popular new bakery offerings like holiday dessert bars and a crème brûlée bar cake. The private-label Kirkland Signature brand continues to be a key driver, growing at a faster pace than overall sales.
Reinforcing its commitment to being the first to lower prices, Costco passed savings on to its members across a variety of products.
Product | Price Change |
KS Chicken Pot Pie | From $4.29 to $3.99/lb |
KS Bacon | From $18.99 to $16.99 |
KS Walnuts 3 lbs | From $14.49 to $12.99 |
This disciplined approach to merchandising and operations is executed within a dynamic macroeconomic environment.
5. Market Conditions and Forward-Looking Investments
A company's performance is intrinsically linked to the external economic environment and its commitment to future growth. This final section examines how Costco is managing inflationary pressures and tariffs while simultaneously making significant capital investments to fortify its long-term competitive position.
5.1. Navigating Inflation and Tariffs
The overall inflationary environment remained relatively consistent with recent quarters. Specific commodity pressures in categories like beef and coffee were largely offset by lower inflation in eggs, cheese, and produce. Management continues to deploy proactive strategies to mitigate the impact of tariffs on its members and maintain its price leadership. These strategies include:
- Changing the country of production for certain items.
- Sourcing more items produced in the U.S.
- Consolidating global buying efforts to lower costs.
- Leaning into the Kirkland Signature supply chain for greater control.
- Adjusting the item assortment to replace tariff-impacted goods with alternative high-value products.
5.2. Capital Expenditure and Future Investment
Costco invested approximately $1.53 billion in capital expenditures during the first quarter. For the full fiscal year, the company estimates total capital expenditures will be approximately $6.5 billion. These significant investments are strategically allocated to fuel future growth by supporting a higher number of new warehouse openings, increasing warehouse remodels, expanding the depot network to enhance supply chain efficiency, and funding ongoing digital initiatives.
In conclusion, Costco's Q1 results demonstrate a powerful combination of robust top-line growth fueled by accelerating digital adoption and successful physical expansion, alongside disciplined margin management. These strategic investments and operational efficiencies solidify the company's competitive position and affirm its long-term growth trajectory.
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