Costco Beats Revenue Forecast but EPS Misses as Membership Momentum Fuels Growth

Costco’s third‑quarter report revealed a company that is still expanding its moat even when headline numbers fall short of street expectations. Net sales climbed to $69.15 billion, outpacing last year’s $61.96 billion and delivering an 11.6% increase—well above the consensus revenue estimate of $68.69 billion. The surge was powered by robust comparable‑sales growth across all geographies: 9.4% in the United States, 10.7% in Canada, and a striking 11.2% internationally. Even after stripping out gasoline price volatility and foreign‑exchange effects, adjusted comparable sales still rose 6.6%, underscoring that core consumer demand remains resilient despite higher inflationary pressures.

The earnings miss stemmed from a $0.02 per share shortfall on the GAAP EPS front, where the company posted $4.93 versus the $4.95 consensus. While the miss appears trivial in absolute terms, it reflects tighter margins that have been eroding slowly over the past year. Gross margin slipped to 11.04%, a 21‑basis‑point decline from Q3 FY’25, partially offset by lower gasoline costs and modest SG&A efficiency gains. The company’s operating income rose to $2.82 billion, but the incremental cost of merchandise—driven by higher freight and labor expenses—kept profit expansion in check.

Membership dynamics continue to be Costco’s secret weapon. The retailer reported a 89.7% worldwide renewal rate and added 4.0% more cardholders year‑over‑year, pushing total memberships to 148.5 million. Executive membership growth of 10.7% further deepened the revenue per member profile, with membership fees contributing $1.37 billion to total revenue. This sticky base not only cushions earnings volatility but also fuels traffic that translates into higher basket sizes—comparable ticket grew 7.3% and comparable traffic rose 2.4%, both metrics beating prior‑year trends.

Digital channels are no longer a peripheral play for Costco; they now account for over 21% of comparable sales, an increase of more than one percentage point from the same quarter last year. The company highlighted several digital enhancements—including push‑notification scaling in its app, expanded mobile cake ordering, and a pre‑scan rollout across international markets—that have driven e‑commerce traffic up 37%. These initiatives are beginning to offset the slower growth in brick‑and‑mortar footfall and signal a strategic pivot toward an omnichannel experience that could unlock higher margins over time.

The market’s reaction was measured but positive. After the earnings release, Costco shares edged higher to $998.40, up 0.32% from the prior close of $995.20. Traders appear to be rewarding the company’s top‑line beat and membership strength while discounting the modest EPS miss as a temporary compression in margins. Analysts are likely recalibrating their price targets, factoring in the continued expansion of warehouse footprints—three new locations opened this quarter in Texas and Utah—and the pipeline of additional sites slated for FY’26, which should sustain traffic growth.

Looking ahead, Costco’s management reaffirmed its guidance for the remainder of fiscal 2026, projecting net sales to finish the year around $277 billion, roughly a 9% increase YoY. The company also hinted at further investments in digital infrastructure and a focus on “everyday low prices” through strategic SKU rationalization. Investors should watch the upcoming Q4 results for signs that margin pressure is easing and that digital sales can translate into higher profitability. In particular, the evolution of gasoline pricing, freight costs, and labor wage trends will be critical variables that could either amplify or dampen Costco’s growth trajectory in the next quarter.