Costco (COST): a chat, question by question

Costco FY2026 (year ended 2026-08-30, 10-K filed 2026-10-07)

Top line: Total revenue was $303.2B, up 10.1% from $275.2B in FY2025. Net sales were $297.2B, up 10%. Comparable sales rose 8%, with average ticket up 5% and shopping frequency up 3%. Higher gasoline prices added about $3.5B (130 bps) to net sales. Currency added about $1.3B. The company opened 28 warehouses, 25 net of relocations.

Margins:

The operating and net margins are my calculation from the figures above. According to the filing summary, gross margin percentage fell 3 bps. Excluding gasoline inflation it rose 10 bps. SG&A was 9.15% of net sales, down 10 bps. The effective tax rate was 24.7%. IEEPA tariff refunds of $184 million added about 3 bps to gross margin.

EPS: Diluted EPS was $20.76, up from $18.21 (+14%). Net income rose 14%.

Membership:

• Membership fee revenue rose 11% to $5.91B.
• The filing credits new sign-ups, fee increases and upgrades to Executive membership.
• Worldwide renewal rate was 89.8%.

The warehouse and filing summary don't give total member or paid-member counts, so I can't state them.

Cash and capex:

• Operating cash flow was $15.8B, up from $13.3B.
• Capex was $6.4B, with about $7.5B planned for FY2027.
• Cash and short-term investments were $21.3B.
• The quarterly dividend was raised 13% to $1.47.

Most of the narrative figures come from an AI summary of the MD&A, not the filing's own wording.

Costco, FY2022–FY2026 (fiscal years ending late Aug or early Sep)

Gross margin is as stored in the financials. Operating and net margins are my calculation from operating income and net income divided by revenue, using rounded figures, so treat them as approximate to about 0.1 point.

Over the period, revenue grew about 34%, from $227.0B to $303.2B. Diluted EPS rose about 58%, from $13.14 to $20.76. Gross margin widened about 0.6 points. Operating margin rose about 0.4 points, with FY2023 the low point. Net income grew faster than revenue throughout, which is why EPS outpaced the top line.

What management says drove FY26 vs FY25

This comes from AI summaries of the MD&A sections, not the filings' own wording.

What changed in the story

• Mix of growth: FY25 growth came mainly from shopping frequency. FY26 came mainly from average ticket, and management credits both ticket and frequency.
• Tailwinds replaced headwinds: FY25 had gasoline deflation and FX headwinds, which cost net income $97M. In FY26 both turned into tailwinds, worth about 179 bps of net sales combined.
• Margin drivers: FY25's gross margin gain came from core merchandise, mainly fresh foods and the co-branded credit card. In FY26, ancillary businesses and pharmacy helped, but core merchandise fell. Tariff refunds added 3 bps.
• Membership: FY26 adds fee increases and Executive upgrades as drivers. FY25 cited sign-ups, fee increases and a drag from online sign-ups, which renew at lower rates.
• Tax: The FY25 rate of 25.1% included a $100M discrete benefit. The FY26 rate was 24.7%.

Reading on quality (my reading, not the filing's)

• Better: Comps are higher, and SG&A leverage ex-gas is flat rather than worse. Cash flow improved to $15.8B from $13.3B, helped by lower inventory investment.
• Worse: Part of the headline comes from external factors. Gasoline and FX added roughly 1.8 points to net sales growth. In FY25 they took away about 1.7 points. Underlying core gross margin slipped, and ex-gas gross margin gains were smaller (+10 bps vs a similar +11 bps in FY25). A $184M tariff refund is non-recurring, and part of it went back into member prices.
• Flat: The renewal rate is unchanged at 89.8%.

On these numbers, FY26 comps are stronger in headline terms. Part of that strength comes from gasoline and FX swings, so a comparison ex-gas and ex-FX is closer to like-for-like. I can't separate a precise ex-gas, ex-FX comp from this data.

Yes. Costco received IEEPA tariff refunds in FY2026. Both passages below are verbatim from the FY2026 10-K (fiscal year ended 2026-08-30), Item 7 MD&A. Dollar amounts in the filing are in millions.

"Tariff Impacts" (MD&A)

Beginning in February 2025, the United States imposed tariffs under the International Emergency Economic Powers Act (IEEPA) on certain goods, materials, and products imported into the United States. We paid the government approximately $500 in IEEPA tariffs. In February 2026, the U.S. Supreme Court ruled that the IEEPA tariffs were unlawful. Following this ruling, the government launched a program to administer IEEPA refunds.

We applied the gain contingency model, in accordance with Accounting Standards Codification (ASC) 450-30, "Gain Contingencies," recognizing recoveries in our consolidated statements of operations only as they were realized. During 2026, we began filing for refunds and received $184, made up of $174 in refunds, recorded as a reduction to merchandise costs, and $10 recorded as interest income. A portion of these refunds was invested in reducing prices for members. Subsequent to 2026, we received $155 in additional refunds and we intend to continue to invest the majority of the refunds in increased value for the member. For a small percentage of transactions where corrections are required, refunds may be delayed as the government continues to implement the IEEPA refund process.

"Gross Margin" (MD&A), the relevant sentence

IEEPA tariff refunds, net of investment in price reductions for members, positively impacted gross margin by three basis points.

Points to flag for your VP

• Split of the $184M: $174M reduced merchandise costs. The other $10M was interest income, so it did not go through gross margin.
• Subsequent receipts: a further $155M arrived after year-end. That is outside FY26 and is not in the FY26 figures.
• Amount paid: about $500M in IEEPA tariffs, so refunds received so far total $339M ($184M plus $155M). I added those two figures; the filing doesn't state the sum.
• Pass-through: the filing says part of the refunds went back to members as lower prices, and it intends to keep investing the majority of them. That is why the net margin effect is only 3 bps.

In my earlier summary I called the $184M a gross margin benefit. Strictly, $174M went through merchandise costs and $10M through interest income.

Costco vs Walmart vs BJ's (latest annual filings; valuation as of 2026-10-12)

Reading:

• Growth: Costco's 10.1% is more than double the other two's 4.7%. Its fiscal year also ended about seven months later, so the periods aren't aligned. Costco's growth includes the gasoline and FX tailwinds discussed earlier.
• Margins: Gross margins differ a lot because of the business models (a general-merchandise mix at Walmart, a thin-markup membership model at Costco). At the operating and net lines the three sit within about 0.4 and 0.4 points of each other. Walmart is slightly ahead, and BJ's is slightly behind.
• Valuation: Costco carries the highest multiples on all three measures, and BJ's the lowest. The multiples use each company's latest annual earnings, so Walmart's and BJ's rest on figures that are older than Costco's.

Operating and net margins are my calculation from the financials.

I can't tell you whether to buy it. FFP One gives data and analysis, not personal recommendations or ratings. I also won't call it cheap or expensive. Here is the data you'd use to decide.

Costco's multiples now vs its own history

Against peers (latest annual figures)

• Walmart trades at 41.4x P/E and 21.5x EV/EBITDA.
• BJ's trades at 22.8x P/E and 11.8x EV/EBITDA.
• Costco is the highest of the three on all three multiples.

What the multiple rests on

• Revenue grew 10.1% in FY2026 and diluted EPS grew about 14%. That is faster than both peers' revenue growth of 4.7%.
• Part of the revenue growth came from gasoline and currency tailwinds. The renewal rate was flat at 89.8%.
• The current P/E is below the FY2024 and FY2025 year-end levels. It is above the FY2021–FY2023 levels.

Whether 46x is a fair price for that growth depends on your own view of how long it lasts. I can't predict that. Your own risk tolerance and time horizon matter too, and those are yours to weigh.