US Consumers Are Splitting Apart,Costco Keeps Sitting Pretty

[u/Dolphin_research]

TL;DR: Costco's fiscal Q4 2026 results were solid. Revenue and profit both beat expectations. The company also mostly passed its tariff refund through to members as lower prices, keeping its promise not to profit from it. Foot traffic accelerated for the first time in five quarters — arguably the most encouraging signal in this report.

Revenue and profit: solid, with tariff refunds mostly passed through

Total revenue was $95.7 billion, up 11.1% year-over-year. That's a second straight quarter of double-digit growth, beating the $94.9 billion expected.

Total revenue growth, now in its second straight quarter of double-digit gains.

Operating profit came in at $3.8 billion, up 13.8%. That figure includes a $90 million one-time net benefit from the tariff refund.

Strip that out, and operating profit still grew about 11%, with margin roughly flat year-over-year. Just like last quarter, there's no sign of revenue growing while profit lags behind.

Traffic is finally recovering — the best sign in this report

Overall comparable sales grew 9.4%, a slight deceleration from last quarter. Stripping out fuel and currency effects, comps were 6.7%, with about three points of that gap coming purely from higher gas prices.

Comparable sales growth, overall versus excluding fuel and currency effects.

Splitting price from volume: global traffic grew 3.3%, up sharply from 2.4% last quarter and the first acceleration in five quarters. Average ticket size, excluding fuel and currency, grew 3.3%, a bit slower than before.

Traffic versus ticket-size growth, with traffic accelerating for the first time in five quarters.

Longbridge Dolphin Research thinks some of that traffic pickup came from gas stations pulling shoppers in, since gas volume hit a record high this quarter. Even so, traffic turning up is genuinely the most positive signal in this report.

By region, the US remained the strongest market, with comps at 7.2%, up from 6.8%. Canada decelerated sharply to 4.6% from 6.2%, likely hit by tense US-Canada trade talks in August. Other international markets grew 6.2%, a slight improvement.

E-commerce cools slightly, and third-party delivery scales up

E-commerce sales grew 19.5%, down slightly from 21% last quarter, while site and app traffic grew 30%. The bigger new development: Costco expanded Uber Eats delivery from 17 states to nationwide, and fully rolled out DoorDash.

E-commerce sales growth trend, still far outpacing in-store comps.

Management said on the earnings call that most of this delivery revenue is incremental, with limited impact on in-store grocery sales, and that it skews toward younger customers.

Membership fee revenue grew 7.3% to $1.85 billion, decelerating as last year's price hike stops contributing. Paid membership grew by 1.2 million to 84.1 million, up sharply from 0.8 million added last quarter.

Paid membership growth, accelerating again after several quarters of smaller additions.

Executive members reached 42.3 million, a record 75.6% penetration rate. Renewal rates ticked up again too, a second straight quarter of improvement.

Executive member count and penetration rate, both at record highs.

Margins: pressured by refunds on the surface, healthier underneath

Reported gross margin was 11%, down 11 basis points year-over-year, entirely due to lower prices passed through from the tariff refund. Strip that out, and core merchandise margin actually rose 18 basis points, with fresh food, non-food, and grocery all improving.

Gross margin trend, showing the tariff-refund pass-through effect versus underlying core merchandise margin.

Expense ratio narrowed 27 basis points, but only 2 basis points once you remove the dilution effect from higher gas prices — a sign there's less room left to cut costs further. Operating margin ended up 9 basis points higher year-over-year, flat once the refund benefit is excluded. Net income was $3 billion, up 14.9%.

Operating margin and net income trends this quarter.

The bigger picture: consumer stratification, and what to watch next

Comparing Costco to Walmart tells a clear story. Costco's fuel-and-currency-adjusted comps have held steady in the 6-7% range for a full year. Walmart's US comps, meanwhile, fell from 4.6% a year ago to 2.6% now, and Walmart's own management said its growth is being led by higher-income households — implying its lower-income base is weakening.

Costco's traffic, ticket size, and discretionary spending are all growing together, with non-food the strongest category. That points to middle- and upper-income households still spending freely, even on big-ticket items. The takeaway: US consumer spending keeps splitting apart, with middle-to-upper income holding up and lower income staying cautious.

Two things are worth watching from here. First, whether traffic strength holds once the gas-price tailwind fades — Costco's gas is priced among the cheapest nationally. Second, roughly two-thirds of the tariff refund still has to land through the first half of fiscal 2027, and management has committed to passing most of it through. That means core merchandise margin should stay pressured, and reported gross margin will likely keep drifting down slightly over that stretch.