Costco Q3 Earnings Prep: Focus on the US Engine
Costco’s story has always been the membership flywheel: pay $65 a year, fill a pallet-sized cart, come back every other week, renew at the highest rate in American retail. Thursday after the close brings Q3 FY26, and the central question is whether the existing US base is still growing.
For background, Costco runs three geographic segments: United States ($49.9B Q2 FY26 revenue, ~72% of the company), Canada ($9.3B, ~13%), and Other International ($10.4B, ~15%). Revenue has two components: (1) net sales (Q2 FY26 $68.2B), comprised of core merchandise (foods & sundries, non-foods, fresh foods; ~81% of revenue) and warehouse ancillary and other businesses (gas, pharmacy, optical, food court, travel; Q2 FY26 $12.1B, ~17% of revenue); and (2) membership fees (Q2 FY26 $1,355M, ~2% of revenue). The high-margin annual membership fee is roughly half of operating income (Q2 FY26 $2,606M), which is what allows Costco’s merchandise to run at razor-thin operating margins.
Management is pulling three levers in parallel. First, a September 2024 membership fee hike that’s still feeding fee growth as it laps. Second, an accelerated warehouse build-out, weighted to the back half of FY26. Third, a digital channel that’s outpacing in-store growth.
So heading into Thursday, the single most important sentence will be whatever the CFO says about underlying US sales growth. That’s still the engine driving the model, even as the warehouse build-out and digital channel scale. Five things to watch:
US Comparable Sales ex-FX and Gas. The cleanest read on the core American shopper went from +9% in Q2 FY25 to +6% in Q2 FY26. The March 5-week ran +6.2%, April +8.0% (with Easter helping by 1.5 points, so roughly +6.5% on a clean basis). Look for Q3 at or above +6.5% to confirm core US demand is holding.
Membership Renewal Rates. Worldwide slipped from 90.5% to 89.7% YoY in Q2 FY26, and US/Canada from 93.0% to 92.1%. Management attributes the drift to a higher mix of online sign-ups renewing at a slightly lower rate. Focus on US/Canada at 92.1%, the core member base: Q-o-Q slippage decelerated to just 10 bps in Q2 FY26 from 30-50 bps a quarter earlier, so anything wider than 10 bps says the deterioration is reaccelerating.
Membership Fee Revenue Growth. Fees grew +14% in Q2 FY26, with 35% from the September 2024 fee hike (5% hike + 9% organic from sign-ups and Executive mix). The hike contribution fades ~40% in Q3 as the comp period laps more post-hike months, giving ~12% central case (3% hike + 9% organic). Above the central case, sign-ups are accelerating beyond the 9% baseline; below, organic is weakening.
Capital Spending Cadence. First-half capex was $2,815M (78% US at $2.2B), with 12 warehouses opened. The 2H plan is 21 openings: 10 US, 4 Canada, 6 Other International (Japan, Korea, Mexico, Sweden, Spain), plus a US relocation. 2H spend of roughly $3.7B hits the $6.5B FY26 guide as the heaviest 6-month spend in Costco history. Dollars chase the US base, but back-half openings are half international. Watch the international 6 landing on schedule; slippage signals the long-runway thesis is harder than guidance implies.
Digital Comparable Sales. Digital grew +22% ex-FX in Q2 FY26, ran +22.5% in the March 5-week, then slipped to +18.4% in April. The April step-down likely partly reflects Easter calendar (more in-store buying when Easter falls late) rather than just saturation, but Q3 will tell. Sustained 20%+ keeps digital as a credible third growth lever; lower means the flywheel is decelerating faster than the supporting app data (+63% Q2 app visits) would predict.
All data sourced via Revelata’s deepKPI from Costco’s 10-K, latest 10-Q, and monthly 8-K sales releases, with additional context from analyst reporting and regulatory filings.
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