Costco Wholesale Corporation (קוסטקו)
Analytical review · Annual report for the fiscal year ended August 30, 2026
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. Costco's Form 10-K for the fiscal year ended August 30, 2026, filed October 7, 2026; the earnings release and supplemental presentation of September 24, 2026; the three quarterly reports of the year; and the annual reports for 2024 and 2025. Costco's fiscal year ends in late August, and its fourth quarter is longer than the others (16 weeks instead of 12). Market data: quote of October 8, 2026, Bank of Israel representative USD rate of the same day.
Company Profile
Costco operates wholesale warehouse clubs that require an annual membership fee. At the end of fiscal 2026 the company operated 939 warehouses in 14 countries: 647 in the U.S. and Puerto Rico, 115 in Canada, and 177 in Mexico, Japan, the U.K., Korea, Australia, Taiwan, China and Europe. Alongside the warehouses it runs e-commerce sites in 9 countries, 774 gas stations, pharmacies, travel services and business centers.
The model is built on a limited selection — fewer than 4,000 active items per warehouse — at low prices and high volume. According to the filing, the company often sells inventory before it has to pay suppliers for it. Its private label is Kirkland Signature. At year-end the company had 84.1 million paid members, 150.4 million cardholders and 355,000 employees.
The basic annual fee in the U.S. and Canada is $65. Executive membership costs $130 and earns a 2% reward on most purchases, up to an annual cap. The company has no controlling shareholder and a single share class. CEO: Ron Vachris; CFO: Gary Millerchip.
Financial Performance
The year: broad growth, and two lines worth normalizing
In fiscal 2026 net sales rose 10.1% to $297.2 billion and membership fees rose 11.0% to $5.9 billion. Comparable sales rose 8.4%; excluding gasoline prices and foreign exchange, 6.6%, compared with 8% the year before. The price of gasoline per gallon rose 12% and added $3.5 billion to sales. Operating income rose 12.5% to $11.7 billion and net income 13.9% to $9.2 billion.
What to normalize: In February 2026 the U.S. Supreme Court struck down tariffs imposed under IEEPA. Costco had paid about $500 million of such tariffs and received $184 million back in 2026. According to the filing, part of the refund was invested in lower prices; the net effect added 3 basis points to gross margin and $0.15 to Q4 EPS. Discrete tax benefits of $155 million were also recorded ($100 million the prior year). Without these two items, EPS was $20.26 versus $17.98 — up 12.7%, versus 14.0% reported.
| $ millions | FY2024 | FY2025 | FY2026 | Change |
|---|---|---|---|---|
| Net sales | 249,625 | 269,912 | 297,247 | +10.1% |
| Membership fees | 4,828 | 5,323 | 5,907 | +11.0% |
| Gross margin (of net sales) | 10.92% | 11.12% | 11.09% | −3 bp |
| SG&A (of net sales) | 9.14% | 9.25% | 9.15% | −10 bp |
| Operating income | 9,285 | 10,383 | 11,685 | +12.5% |
| Net income | 7,367 | 8,099 | 9,226 | +13.9% |
| Diluted EPS ($) | 16.56 | 18.21 | 20.76 | +14.0% |
Excluding the effect of gasoline prices: gross margin rose 10 basis points to 11.22%, and SG&A rose 1 basis point. LIFO charge: $206 million ($142 million in 2025).
The quarters: membership fees slow down
The September 2024 fee increase (from $60 to $65, and for Executive from $120 to $130) is recognized gradually over the membership year. According to the filing, it accounted for about 40% of membership fee growth in 2025 and about 30% in 2026. During 2026 its effect ran its course: membership fee growth fell from 14.0% in Q1 to 7.3% in Q4 (7.7% excluding currency). Deferred membership fees — fees collected but not yet recognized — rose 5.3% for the year, versus 14.1% the year before.
| Fiscal 2026 | Q1 | Q2 | Q3 | Q4 (16 weeks) |
|---|---|---|---|---|
| Net sales ($ millions) | 65,978 | 68,242 | 69,154 | 93,873 |
| Sales growth | +8.2% | +9.1% | +11.6% | +11.2% |
| Membership fee growth | +14.0% | +13.6% | +10.7% | +7.3% |
| Net income growth | +11.3% | +13.8% | +15.2% | +14.9% |
| Diluted EPS ($) | 4.50 | 4.58 | 4.93 | 6.75 |
Balance Sheet & Capital
On August 30, 2026 Costco held $21.3 billion in cash and short-term investments against $6.2 billion of debt — net cash of $15.1 billion. $2.25 billion of the debt matures in fiscal 2027. Equity rose to $35.8 billion. 755 of the 939 warehouses are fully owned by the company, including the land.
Suppliers fund the inventory: accounts payable, $22.6 billion, exceed inventory, $19.3 billion. The ratio rose from 1.04 at the end of 2024 to 1.09 at the end of 2025 and 1.17 at the end of 2026, and was already 1.15 in Q3. According to the filing, the reasons are faster inventory turns and improved payment terms with suppliers. Working capital added $2.3 billion to operating cash flow this year.
| $ millions | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Operating cash flow | 11,339 | 13,335 | 15,817 |
| Capital expenditures | 4,710 | 5,498 | 6,435 |
| Free cash flow | 6,629 | 7,837 | 9,382 |
| of which: change in working capital | 611 | 1,764 | 2,320 |
| Dividends paid | 9,041* | 2,183 | 2,458 |
| Share repurchases | 700 | 903 | 848 |
* Includes a special dividend of $15 per share (about $6.7 billion) in January 2024.
Capital return: In April 2026 the quarterly dividend was raised 13% to $1.47. Buybacks, 891,000 shares at an average of $950.90, only offset employee share grants: the share count barely changed. Together, 35% of free cash flow was returned to shareholders, and cash grew by $6.0 billion. The current repurchase program expires in January 2027 with $1.1 billion remaining.
According to management: capital expenditures in fiscal 2027 will be about $7.5 billion, with up to 33 openings (including 5 relocations).
Segments
Costco reports three geographic segments. The U.S. and Canada together are 86% of sales and 83% of operating income. According to the filing, California alone is 26% of U.S. sales.
| $ millions | Revenue 2026 | Change | Op. income 2025 | Op. income 2026 | Change | Op. margin |
|---|---|---|---|---|---|---|
| United States | 219,823 | +9.9% | 6,878 | 7,647 | +11.2% | 3.5% |
| Canada | 40,561 | +9.9% | 1,849 | 2,107 | +14.0% | 5.2% |
| Other International | 42,770 | +11.8% | 1,656 | 1,931 | +16.6% | 4.5% |
By category: foods and sundries (39% of sales) rose 6.6%; non-foods 8.7%; fresh foods 9.8%. Warehouse ancillary and other businesses — gasoline, pharmacy, e-commerce and travel — rose 19.9%, led by gasoline and pharmacy. Digitally-enabled sales were 11% of sales and grew 20.9% on a comparable basis.
Competitive Position
The differentiation the company describes in its filing is the combination of membership fees, limited selection and volume. Membership fees allow it to operate at a gross margin of about 11%, lower than most retailers according to the filing. Membership fee income, $5.9 billion, equals about half (51%) of operating income. The U.S. and Canada renewal rate was 92.3% at year-end, and average sales per warehouse, per company data, rose from $272 million to $292 million.
Executive membership: 42.3 million members (+9.3%), about half of paid members and, according to the filing, about 75% of sales. Their 2% reward is deducted from sales: $3.4 billion in 2026 (+12.5%).
Where the filings show pressure: the renewal rate fell from 92.9% at the end of 2024 to 92.3%, and worldwide from 90.5% to 89.8%. The company attributes this to a higher share of memberships sold online, including digital promotions, which renew at a slightly lower rate. The filing names Walmart (including Sam's Club), Target, Kroger, Amazon and BJ's among competitors. This review does not include competitor data from primary sources.
How to Think About This Company
With Costco, the central question is not the quality of the business but how much of the next decade is already embedded in the price. Over the past ten years EPS grew 14.6% a year on average, without a single down year in the series. On October 8, 2026 the P/E stood at about 46. Over the past year EPS rose 14% while market value barely changed — the multiple fell from about 52 to about 46. Both facts are true at the same time, and they describe a starting point, not a direction.
Two businesses in one. Membership fees, $5.9 billion, are almost pure profit: they equal about half of operating income. Merchandise sales run at margins of a few percent, and their role is to give members a reason to renew. Anyone studying the company should follow the two engines separately: operating income excluding membership fees rose 14.2% this year (about 12.4% excluding tariff refunds), and membership fees 11.0%.
The membership fee cycle. A fee increase is spread over a year, so it creates one to two years of accelerated growth followed by a return to the base rate. In 2026 that transition is visible quarter by quarter: 14.0%, 13.6%, 10.7% and 7.3%. The base rate rests on member growth (+3.8%) and on upgrades to Executive (+9.3%). Deferred membership fees, which lead revenue recognition, rose 5.3%. The next increase is a board decision, and the filings do not address its timing.
Gasoline changes how every percentage reads. Gasoline is 11% of sales, at low margins. When its price rises, sales grow and percentage margins fall — without anything changing in the business. That is why the filing presents every figure excluding gasoline too: comparable sales of 6.6% instead of 8.4%, and gross margin up 10 basis points instead of down 3.
Cash flow that comes from suppliers. Costco sells much of its inventory before paying for it, so growth generates cash instead of consuming it. This year the effect strengthened: accounts payable rose $2.8 billion, far more than inventory. Free cash flow was $9.4 billion, but $2.3 billion of it came from working capital. The filings show the payables-to-inventory ratio rising gradually over two years; they do not show whether the new level is permanent.
Renewal — the lagging indicator. The renewal rate is calculated on memberships that expired 7 to 18 months before the reporting date. A change in member behavior therefore shows up with a delay of about a year. The U.S. and Canada rate moved between 92.1% and 92.3% across the 2026 quarters, below the 92.9% of late 2024. The company does not publish the rate by sign-up channel.
Cash accumulates. The regular dividend and buybacks returned 35% of free cash flow this year. Buybacks only offset employee share grants. Net cash rose to $15.1 billion. The company has paid special dividends in the past, most recently in January 2024; the current filing contains no statement on this. Interest income on cash, $601 million, contributed about 9% of pretax income growth, and depends on the level of interest rates.
Tariffs: a one-time gain, and a legal risk. Tariff refunds added $0.15 to Q4 EPS. After year-end another $155 million was received, and according to management most of it will be invested in lower prices for members. At the same time, four class actions seek to pass the refunds to members, claiming the tariffs were passed through in prices. In one of them, the company's motion to dismiss was denied in July 2026.
Warehouse growth. The company opened 25 net new warehouses this year and, according to management, plans up to 33 openings in 2027. Growth in warehouse count (2.7%) is a small part of sales growth (10.1%); most of it comes from existing warehouses. According to the filing, new warehouses are less profitable in their early years, and openings in existing markets can cannibalize nearby locations.
The framework is meant to organize the questions. It does not decide and does not take part in the decision — the decision belongs to the reader.
This framework is intended to structure analysis, not to produce an investment conclusion.
Risks & Monitoring
Risks that emerge from the filings
- Concentration: the U.S. and Canada are 86% of sales, and California alone 26% of U.S. sales.
- Membership fees: about half of operating income. A decline in renewal or sign-ups hits profit directly.
- Tariffs: according to the filing, higher tariffs tend to hurt results more than improve them. Four class actions concern the tariff refunds.
- Labor costs: wages and benefits are the largest expense after merchandise. In March 2026 top-of-scale wages rose $1 per hour. Wage lawsuits in California and Washington; one has a trial set for March 2027.
- Gasoline and prices: swings in gasoline prices change sales and percentage margins, and co-branded credit card reward costs rise with gasoline sales.
- Privacy and cyber: class actions over website tracking tools; the company holds data on more than 150 million cardholders.
- Market expectations: the 2025 annual report stated explicitly that the stock price reflects high market expectations for future results.
Topics to monitor in the Q1 fiscal 2027 report
| # | Topic | Latest reading |
|---|---|---|
| 1 | Membership fee growth and deferred membership fees | +7.3% in Q4; deferred +5.3% |
| 2 | Renewal rate, U.S. & Canada and worldwide | 92.3% / 89.8% |
| 3 | Paid members and Executive members | 84.1 / 42.3 million |
| 4 | Comparable sales excluding gasoline and FX | 6.6% for the year; 6.7% in Q4 |
| 5 | Payables-to-inventory ratio | 1.17 |
| 6 | Gross margin ex gasoline, and further tariff refunds | 11.22%; $155 million after year-end |
| 7 | Capital expenditures and openings | $6.4 billion; 25 net warehouses |
| 8 | New repurchase program (current one expires January 2027) and use of cash | $1.1 billion remaining; cash $20.2 billion |
| 9 | Tariff class actions | Open |
Scenario Framework
The scenarios below are descriptive, not predictive. They include no prices, no probabilities, and do not rank outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so they can be checked against the next filings.
Scenarios are descriptive, not predictive.
- If comparable sales ex gasoline and FX stay at the level of recent years, with growth in traffic and not only in ticket
- If the renewal rate returns to its late-2024 level
- If upgrades to Executive continue at last year's pace
- If supplier payment terms hold, and free cash flow excluding working capital approaches net income
- If membership fee growth settles around the pace of member and Executive growth, until a future fee increase
- If margins excluding gasoline remain stable
- If the opening pace stays as management presented it
- If capital return stays at the level of recent years and cash keeps accumulating
- If the renewal rate keeps declining and paid member growth slows
- If working capital with suppliers reverses and cash flow falls below net income
- If comparable sales ex gasoline keep slowing from 8% to 6.6% and below
- If the tariff or wage lawsuits end in a material charge
Analytical Lens
The six questions below are identical in every company review we publish. They are open by design and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions as every other company.
Key Observations
1. In fiscal 2026 Costco reported revenue of $303.2 billion (+10.1%) and EPS of $20.76 (+14.0%). Excluding tariff refunds and discrete tax benefits, EPS rose 12.7%.
2. Membership fee growth fell from 14.0% in Q1 to 7.3% in Q4 as the effect of the September 2024 fee increase ran its course. Deferred membership fees rose 5.3%. U.S. and Canada renewal: 92.3%, versus 92.9% at the end of 2024.
3. Free cash flow totaled $9.4 billion, of which $2.3 billion came from working capital, mainly higher accounts payable. 35% of free cash flow was returned to shareholders, and net cash rose to $15.1 billion.
4. On October 8, 2026 market value was about $421 billion, close to its value at the end of fiscal 2025 ($418 billion), while EPS rose 14%. The P/E at fiscal year-ends 2022–2025 ranged between 38 and 54.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held an investment advisory license from 2008 to 2023. As of the publication date of this document, the company does not hold an investment advisory, investment marketing, or portfolio management license.
This document is intended for research and professional education purposes only. Nothing herein constitutes a recommendation to buy, sell, hold, or take any action in securities. It is not a substitute for advice that takes into account each person's individual data and needs. Any decision is the sole responsibility of the investor.
Past performance is not indicative of future results. Data was drawn from official sources: the Form 10-K for the fiscal year ended August 30, 2026 (filed October 7, 2026), the earnings release and supplemental presentation of September 24, 2026, the Form 10-Qs for fiscal 2026, and the Form 10-Ks for 2024 and 2025 filed with the U.S. Securities and Exchange Commission. Historical multiples: stockanalysis.com. Filing updates published after this date are not included.
Qualified-Client Review — Family Office
The full analytical review of Costco (COST) for fiscal 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company", a structured scenario framework, and a 6-dimension Analytical Lens.
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