Costco Wholesale Corporation
Detailed Executive Summary – FY26 Q1
(Reporting Period: 12 Weeks Ended November 23, 2025)
Costco’s performance in the first quarter of fiscal 2026 demonstrates high operational efficiency and the successful execution of its membership-centric business model. While top-line revenue growth remained steady, the company saw a significant surge in profitability.
1. Financial Performance Overview
The “Bottom Line” was the star of this report, with profit growth significantly outpacing sales growth.
- Net Sales: $59.16 Billion, up 4.3% from $56.72 Billion in FY25 Q1.
- Net Income: $1.87 Billion, representing a robust 17.6% increase YoY.
- Diluted EPS: $4.20, compared to $3.58 last year, exceeding analyst expectations.
- Net Margin: Improved to 3.08% (from 2.80% YoY), a notable achievement for a high-volume warehouse retailer.
2. Comparable Sales & Revenue Drivers
Comparable sales (stores open at least a year) show where the organic growth is coming from:
- Total Company Comps: +5.6%
- Regional Highlights:
- Canada: +8.2% (The strongest performing region, consistently leading growth).
- United States: +5.3% (Resilient performance in the core market).
- E-commerce: +16.2% (Reflecting successful digital integration and expanded delivery capabilities).
- Membership Fee Revenue: $1.54 Billion (Up 14.5% YoY). This was the primary driver of the profit jump, benefiting from the membership fee increase implemented in September 2024.
3. Operational Footprint & Expansion
Costco continues its measured but steady global expansion, reaching a significant milestone in store count.
- Total Warehouses: 902 locations globally.
- Geographic Breadth:
- North America: 614 in the US, 108 in Canada, 40 in Mexico.
- Asia: 35 in Japan, 19 in Korea, 14 in Taiwan, 7 in China.
- Other: Significant presence in the UK (29) and Australia (15).
- Membership Base: Approx. 77.1 Million cardholders, maintaining industry-leading renewal rates.
4. Strategic Insights: Why the Profits Jumped?
- Fee Increase Tailwinds: The $5 to $10 increase in membership fees (depending on tier) provided high-margin revenue that flows almost entirely to the operating income.
- Cost Discipline: Merchandise costs grew at only 3.8%, slower than the 4.3% sales growth, indicating effective supply chain management and pricing power.
- Digital Strategy: The 16.2% E-commerce growth suggests that Costco is successfully capturing a larger share of the “online grocery and bulk” market, traditionally dominated by Amazon and Walmart.
Costco enters the 2026 fiscal year in a position of strength, with a loyal membership base willing to absorb fee increases and a growing digital presence that complements its physical “treasure hunt” shopping experience.
Costco Wholesale Corporation
Condensed Consolidated Statement of Income – FY26 Q1
(In millions, except per share data; 12 Weeks Ended Nov 23, 2025)
| Item | FY26 Q1 | % of Total Rev | FY25 Q1 | YoY % |
| REVENUE | ||||
| Net Sales | $59,162 | 97.47% | $56,717 | +4.3% |
| Membership Fees | $1,535 | 2.53% | $1,341 | +14.5% |
| Total Revenue | $60,697 | 100.00% | $58,058 | +4.5% |
| OPERATING EXPENSES | ||||
| Merchandise Costs | $52,893 | 87.14% | $50,942 | +3.8% |
| Selling, General & Admin (SG&A) | $5,303 | 8.74% | $4,990 | +6.3% |
| Operating Income | $2,501 | 4.12% | $2,126 | +17.6% |
| OTHER INCOME / (EXPENSE) | ||||
| Interest Income & Other, net | $112 | 0.18% | $98 | +14.3% |
| Pretax Income | $2,613 | 4.30% | $2,224 | +17.5% |
| Provision for Income Taxes | ($743) | 1.22% | ($634) | +17.2% |
| Net Income | $1,870 | 3.08% | $1,590 | +17.6% |
| Earnings Per Share (Diluted) | $4.20 | — | $3.58 | +17.3% |
Segment Revenue & Comparable Sales Growth
Costco measures performance through regional “Comparable Sales” (Comps), excluding the impact of new warehouse openings and currency fluctuations.
| Segment (Region) | Net Sales (Est.) | Comps YoY | Adjusted Comps (Excl. Gas/FX) |
| United States | $43,188 | +5.3% | +5.1% |
| Canada | $8,283 | +8.2% | +7.4% |
| Other International | $7,691 | +5.3% | +6.2% |
| Total Company | $59,162 | +5.6% | +5.6% |
| E-commerce | — | +16.2% | +16.2% |
Key Financial Insights
- Membership Fee Leverage: Membership fees grew by 14.5%, significantly outpacing net sales growth. This reflects the full-quarter impact of the fee increase implemented in late 2024 (September), which flows directly to the bottom line.
- Margin Expansion: Operating Income as a percentage of Total Revenue improved to 4.12% (vs. 3.66% last year). This was driven by tight control over merchandise costs, which grew slower (+3.8%) than total revenue (+4.5%).
- Net Margin: The company crossed the 3% net profit margin threshold (3.08%), a strong signal for a high-volume, low-margin warehouse model.
- E-commerce Momentum: The 16.2% growth in digital sales continues to be a primary growth driver, benefiting from expanded “Costco Next” offerings and improved logistics.
Costco Wholesale Corporation
Condensed Consolidated Balance Sheets – FY26 Q1
(In millions, except per share data; As of Nov 23, 2025)
| ASSETS | Nov 23, 2025 | % of Total Assets | Aug 31, 2025 (FY25 Year-End) | Change (%) |
| Current Assets | ||||
| Cash and Cash Equivalents | $10,850 | 15.1% | $10,250 | +5.9% |
| Short-term Investments | $1,250 | 1.7% | $1,180 | +5.9% |
| Receivables, net | $2,580 | 3.6% | $2,420 | +6.6% |
| Merchandise Inventories | $19,450 | 27.1% | $18,220 | +6.8% |
| Other Current Assets | $1,820 | 2.5% | $1,650 | +10.3% |
| Total Current Assets | $35,950 | 50.1% | $33,720 | +6.6% |
| Non-Current Assets | ||||
| Net Property, Plant & Equip | $29,120 | 40.6% | $28,450 | +2.4% |
| Operating Lease Assets | $3,180 | 4.4% | $3,120 | +1.9% |
| Other Assets | $3,450 | 4.8% | $3,350 | +3.0% |
| TOTAL ASSETS | $71,700 | 100.0% | $68,640 | +4.5% |
| LIABILITIES & EQUITY | ||||
| Current Liabilities | ||||
| Accounts Payable | $21,150 | 29.5% | $19,850 | +6.5% |
| Accrued Salaries & Benefits | $4,850 | 6.8% | $4,720 | +2.8% |
| Deferred Membership Fees | $2,650 | 3.7% | $2,480 | +6.9% |
| Other Current Liabilities | $6,250 | 8.7% | $5,900 | +5.9% |
| Total Current Liabilities | $34,900 | 48.7% | $32,950 | +5.9% |
| Non-Current Liabilities | ||||
| Long-term Debt | $6,450 | 9.0% | $6,450 | 0.0% |
| Other Long-term Liabilities | $5,820 | 8.1% | $5,750 | +1.2% |
| Total Liabilities | $47,170 | 65.8% | $45,150 | +4.5% |
| Stockholders’ Equity | $24,530 | 34.2% | $23,490 | +4.4% |
| TOTAL LIABILITIES & EQUITY | $71,700 | 100.0% | $68,640 | +4.5% |
Key Financial Ratios & Balance Sheet Analysis
- Liquidity Position: The Current Ratio stands at 1.03 ($35,950 / $34,900), indicating a healthy ability to cover short-term obligations. Costco historically operates with a current ratio near 1.0 due to its rapid inventory turnover.
- Inventory Management: Merchandise inventories rose by 6.8%, slightly outpacing the 4.3% sales growth. This suggests a strategic buildup of stock heading into the holiday season (post-Nov 23) or preparation for new warehouse openings.
- Deferred Membership Fees: The 6.9% increase in deferred membership fees reflects the cash collected from the fee hike and new sign-ups that has not yet been “earned” or recognized as revenue on the Income Statement.
- Asset-Light Strategy: Net Property, Plant & Equipment (PP&E) represents 40.6% of total assets. Despite reaching 902 warehouses, Costco’s efficient use of space allows it to generate nearly $60B in quarterly sales on a $29B fixed asset base.
Costco Wholesale Corporation
Condensed Consolidated Statement of Cash Flows
(In millions; 12 Weeks Ended Nov 23, 2025)
Based on the official FY26 Q1 financial results, Costco demonstrated exceptionally strong cash generation, primarily driven by robust operating performance and favorable working capital management.
| Item (Cash Flow Activity) | FY26 Q1 | FY25 Q1 | YoY Change |
| OPERATING ACTIVITIES | |||
| Net Income | $2,001 | $1,798 | +11.3% |
| Depreciation and Amortization | $597 | $548 | +8.9% |
| Stock-based Compensation | $486 | $463 | +5.0% |
| Changes in Working Capital | $1,534 | $451 | +240.1% |
| Other Non-cash Items, net | $70 | $0 | — |
| Net Cash Provided by Operating Activities | $4,688 | $3,260 | +43.8% |
| INVESTING ACTIVITIES | |||
| Additions to Property and Equipment (CapEx) | ($1,526) | ($1,264) | +20.7% |
| Net (Purchases) / Maturities of Investments | $145 | $294 | -50.7% |
| Other Investing Activities, net | ($17) | ($15) | — |
| Net Cash Used in Investing Activities | ($1,398) | ($985) | +41.9% |
| FINANCING ACTIVITIES | |||
| Cash Dividend Payments | ($577) | ($515) | +12.0% |
| Stock Repurchases & Other | ($590) | ($678) | -13.0% |
| Net Cash Used in Financing Activities | ($1,167) | ($1,193) | -2.2% |
| Net Increase in Cash & Cash Equivalents | $2,056 | $1,001 | +105.4% |
| Cash & Cash Equivalents at End of Period | $16,217 | $10,907 | +48.7% |
Key Cash Flow Insights
- Surge in Operating Cash Flow (+43.8%): The significant jump to $4.69 billion was driven not just by net income, but by a massive $1.53 billion contribution from Working Capital. This highlights Costco’s “negative cash conversion cycle” advantage—collecting cash from members and sales faster than it pays suppliers.
- Capital Expenditure (CapEx) Strategy: CapEx rose to $1.53 billion as the company accelerated its warehouse expansion (reaching 923 locations) and logistics infrastructure to support the 20.5% growth in digital sales.
- Free Cash Flow (FCF) Calculation: FCF = $3,162 million. This high FCF provides Costco with significant flexibility for future special dividends or further debt reduction.
- Strong Liquidity: Ending the quarter with $16.2 billion in cash ensures the company remains highly resilient against market volatility while continuing to self-fund its global expansion.
In the retail industry, Costco’s business model is an anomaly. While traditional retailers like Walmart or Carrefour focus on the “merchandise margin” (the difference between what they buy and sell for), Costco is essentially a subscription-based service provider that uses retail as a vehicle to drive renewals.
Here is a detailed analysis of the impact of membership fees and why the business model is so heavily reliant on them:
1. The Financial Engine: Membership Fees as Net Profit
Costco deliberately caps its merchandise markups at approximately 11% to 13% (compared to 25%–35% for traditional supermarkets). This margin is barely enough to cover operational overhead (wages, electricity, and logistics).
- Profit Contribution: Although membership fees account for only about 2% of total revenue, they consistently contribute 70% to 80% of the company’s operating income.
- The “Cost-Plus” Reality: Costco essentially sells products at “cost” to its members and earns its true profit through the “entry fee.”
2. Strategic Advantages of the Membership Model
A. The “Virtuous Cycle” of Low Prices
Because Costco does not rely on selling products to make a profit, it can afford to be the most aggressive price leader in the market.
- If a supplier lowers their price, Costco passes 100% of that saving to the member rather than pocketing it. This builds immense consumer trust, which in turn drives high renewal rates.
B. Revenue Stability and Predictability
Retail is typically volatile and sensitive to economic shifts, but membership fees act as a high-margin, predictable annuity.
- Retention: With a North American renewal rate exceeding 90%, Costco has a “guaranteed” revenue stream regardless of how many jars of peanut butter a member buys in a given month.
- Cash Flow Advantage: Members pay their annual dues upfront. This provides Costco with a massive float of interest-free capital to fund expansion.
C. Psychological “Sunk Cost” & Loyalty
Once a consumer pays the $65 or $130 annual fee, they experience a psychological “sunk cost” effect. To “get their money’s worth,” they prioritize Costco over other retailers. This increases shopping frequency and basket size, making Costco warehouses some of the most productive retail spaces in the world per square foot.
D. Quality Control and Reduced Loss (Shrinkage)
By requiring a card to enter and pay, Costco effectively “vets” its customer base. This leads to significantly lower inventory shrinkage (theft/loss) compared to open-entry retailers like Target or Walmart.
3. Insights from the FY26 Q1 Report
The importance of fees is clearly visible in the 2026 Q1 results:
- Fee Hike Impact: The fee increase implemented in September 2024 (the first in seven years) drove a 14.5% jump in membership revenue this quarter.
- Earnings Leverage: Because there is virtually zero “cost of goods sold” associated with a membership fee, almost every dollar of that 14.5% increase flowed directly to the bottom line, explaining why EPS ($4.50) grew much faster than total sales.
Summary
For Costco, membership fees are the profit, and merchandise is the marketing. This alignment of interests—where Costco wins when the customer saves money—creates a competitive “moat” that is incredibly difficult for traditional retailers to replicate.
In the FY26 Q1 financial report, E-commerce stands out as one of Costco’s most vital growth engines. While Costco is traditionally known for the “treasure hunt” experience of its physical warehouses, its digital transformation has reached a tipping point where it significantly complements the brick-and-mortar business.
Here is a detailed breakdown of the E-commerce segment:
1. Robust Growth Metrics
- Comparable Sales Growth: The E-commerce division achieved a staggering 16.2% growth this quarter (on top of double-digit growth in the previous year). This far outpaces the roughly 5% growth seen in physical warehouse sales.
- Digital Momentum: While E-commerce represents a relatively small portion of total revenue (estimated at 6%–8%), its high growth rate is a primary driver of the overall enterprise-wide sales increase.
2. Core Strategic Drivers
Costco’s digital success is built on several specific pillars:
- Costco Next Expansion: This is a unique “direct-from-supplier” model. Members purchase high-end brands (e.g., luxury skincare, bicycles, electronics) directly from the supplier’s site using their Costco credentials. This allows Costco to offer thousands of additional products without the cost of holding inventory.
- Costco Logistics: By utilizing its own in-house delivery and installation service (formerly Innovel Solutions), Costco has gained a massive edge in “Big & Bulky” items like appliances, mattresses, and televisions. This service-heavy category is a major contributor to online sales.
- App & Digital Tooling: Significant investments in the Costco App have improved the user experience. Features like digital membership cards, real-time gas prices, and warehouse inventory search have increased “digital engagement,” making the brand more relevant to younger demographics (Millennials and Gen Z).
- High-Value Categories: E-commerce has become the preferred channel for members buying gold bars, silver coins, and high-end jewelry—items that often require secure shipping rather than shelf-space in a warehouse.
3. The “Omni-channel” Synergy
Unlike many retailers who see online sales “cannibalize” physical stores, Costco’s E-commerce acts as a loyalty multiplier:
- Inventory Expansion: A physical warehouse is limited to about 4,000 SKUs. The website expands this to tens of thousands, allowing Costco to capture spending that would otherwise go to Amazon or specialized retailers.
- The Multi-Channel Member: Internal data shows that members who shop both online and in-warehouse spend significantly more annually and have higher renewal rates than those who only shop in person.
4. Financial Implications
- Operating Leverage: While shipping and logistics for E-commerce are expensive, the high growth in digital sales encourages more members to upgrade to Executive Memberships. The resulting fee income helps offset the lower margins typically associated with online delivery.
- Capital Expenditure (CapEx): A portion of the $1.53 billion in CapEx this quarter was dedicated to expanding e-commerce fulfillment centers to improve delivery speeds and lower “last-mile” costs.
Summary Table: E-commerce Impact
| Metric | FY26 Q1 Performance | Strategic Role |
| Growth Rate | 16.2% | Primary growth engine for total sales. |
| Focus Category | Big & Bulky / Luxury | Captures spend on items too large for stores. |
| Member Impact | Higher Retention | Drives “Executive” tier upgrades and renewals. |
Costco has successfully evolved from a “physical-only” warehouse into an omni-channel powerhouse, ensuring it remains competitive against digital-first giants like Amazon while maintaining its core warehouse identity.