Costco (COST) Q3 FY26 earnings call: guidance and Q&A

With paid membership growth at 4.1% (lowest in some time) and club-hour changes lapping, should investors keep near-term comp expectations modest?

Management was pleased overall — ex-fee-increase and FX membership income grew 7%, with executive members up over 9%. It attributed slower ~4% paid growth to the absence of major new-market openings (which historically drive outsized but lower-renewing sign-ups) and to cycling strong prior-year growth, calling 4-5% normal absent a special catalyst. It declined to guide but noted ex-gas comps continue in the 6-7% range with no variation.

“we think the sort of the 4% to 5% is a more normal rate of growth when you don't have the benefit of a large increase that's linked to some kind of special event like COVID or a new market entry.”

asked by Michael Lasser · answered by Gary Millerchip

Is the 9 bps core-on-core decline a sign of a more aggressive value posture to gain share, and is competition doing the same?

Management focuses on gross margin ex-gas (up 1 bp) and manages holistically. It was cycling a large prior-year LIFO charge, which created an opportunity to invest in member value (widening gas gaps, lower everyday prices on eggs and meat) to drive top-line growth. It views Costco as its own toughest competitor and the market as rational.

“we saw it as an opportunity recognizing that our members are dealing with higher gas prices to really invest in increasing value for the member”

asked by Pedro Gil Garcia Alejo (for Simeon Gutman, Morgan Stanley) · answered by Gary Millerchip

Is running prices lower ahead of cost declines a change in market rationality or opportunistic? And why did SG&A deleverage 3 bps ex-gas on a ~9% comp?

Management views the market as very rational and its price moves as strategic, not reactionary — getting into lower-cost goods faster (eggs, tariff-affected inventory) consistent with 'first to come down, last to go up.' On SG&A, core operations delivered ~mid-single-digit leverage but was more than offset by higher healthcare costs, small one-offs, and central legal settlements/reserves.

“the moves that we've made on pricing were strategic, not reactionary”

asked by Christopher Horvers · answered by Ron Vachris

With ~$45 cash/share, how do you think about capital allocation, a special dividend, and deploying tariff refunds?

Priority one is reinvesting for growth (warehouses, remodels, depots, manufacturing, digital), then growing the regular dividend and buying back stock to offset dilution. A special dividend is the preferred excess-cash vehicle, but with the stock materially higher than at the last one, cash would need to be higher to match the yield; no plan announced.

“special dividend is typically the most effective way to return excess cash without giving up the flexibility to keep investing in growth”

asked by Charles Grom · answered by Gary Millerchip

How much of the April traffic acceleration came from gas inflation, and is there a structural way to grow traffic when stores are near capacity?

Management said to view traffic over ~12 months: baskets have grown while traffic normalized to ~2% (from ~5%), reflecting a mix shift rather than weakness. Efforts to drive frequency include extended hours, remodels/expanded parking and gas, and faster checkout throughput. Gas traffic is not in the traffic number; less than half of gas visitors enter the warehouse, and gas engagement drives higher frequency, spend, and renewal over time.

“Gas traffic isn't included in our traffic number...a little less than half of our members are visiting the warehouse when they visit the gas station.”

asked by Zhihan Ma · answered by Gary Millerchip

Any behavioral changes seen recently, and how are GLP-1s influencing category performance?

No major change in core merchandising behavior (ex-gas); members prioritize quality, value, and newness. On GLP-1s, Costco's low pharmacy pricing helps members access the drugs, and the halo effect boosts protein items — protein snacks, bars, beef sticks, and a new KS Ultra Filtered Protein Milk that has taken off. CPGs are pivoting products toward GLP-1 consumer needs.

“anything protein right now is doing extremely well...We launched our own Kirkland Signature Beef Stick that's doing tremendous volume”

asked by Peter Benedict · answered by Gary Millerchip

Given Walmart/Amazon delivery-speed escalation and agentic commerce, will Costco need its own 1P delivery, or can it rely on third parties?

Costco will keep evaluating. It already vertically integrated big-and-bulky delivery via a 2020 acquisition, which has been productive. For same-day it is happy with high-satisfaction third-party partners (averaging <45 min) but will assess whether further vertical integration is needed to improve delivery times.

“a few years back in 2020, we went ahead and made an acquisition to get into the big and bulky delivery”

asked by Scot Ciccarelli · answered by Ron Vachris

Is inflation still ~1% across the box, and did gas penny profit slip as you widened gaps?

Inflation was higher in the quarter (low-to-mid single digits), driven mostly/entirely by gas. Fresh and food-and-sundries were lower on produce, egg, and dairy deflation, while beef, deli, and candy stayed inflationary; nonfoods was higher on memory-chip costs with resin-driven increases likely. Gas profit was a little higher YoY in dollars but significantly lower as a rate of sales.

“Our profit was a little bit higher year-over-year, but as a rate of sales, obviously, was significantly lower.”

asked by Gregory Melich · answered by Gary Millerchip

What does the 3-year club pipeline look like in Europe and Asia, and what is the capacity dynamic in Canada?

Canada has significant upside with the next 3-5 years charted and consistent strong growth expected for at least 5 years. Asia's greatest potential is China, Korea, and Japan (Taiwan a few more). Europe is young in France, with strong Spain growth over the next 3 years and continued UK strength. Management sees very strong international expansion over the next 5-10 years.

“we see very strong international expansion over the next 5 to 10 years”

asked by John Heinbockel · answered by Ron Vachris

Is executive strength from trade-ups or new members choosing the higher tier, and how is the China executive rollout going?

It is a combination of Gold upgrades and higher penetration of new members selecting executive for benefits (extended hours, $10/month Instacart). New member sign-ups are growing YoY, not attributable to any single factor. The China executive rollout is ahead of expectations; executive membership exists in most markets with more than the 7 China warehouses, and may expand further over time.

“it's ahead of our expectations in China...we've seen a higher level of activity than we initially have expected.”

asked by Christopher Nardone · answered by Gary Millerchip