Costco Wholesale (NASDAQ:COST) reported fiscal second-quarter 2026 results for the 12 weeks ended Feb. 15, highlighting higher earnings, solid comparable sales growth, and continued momentum in digitally enabled transactions, while executives addressed tariff uncertainty, price investments, and long-term warehouse expansion plans.
Quarterly results and sales trends
Chief Financial Officer Gary Millerchip said net income rose nearly 14% year-over-year to $2.035 billion, or $4.58 per diluted share, compared with $1.788 billion, or $4.02 per diluted share, in the prior-year quarter. Net sales increased 9.1% to $68.24 billion.
Digitally enabled comparable sales increased 22.6% (21.7% adjusted for FX). Management also pointed to rising engagement, with site traffic up 32% and app traffic up 45% in the quarter. Millerchip said personalized product recommendation carousels drove more than $470 million of e-commerce sales in Q2.
Membership income and renewal rates
Membership fee income totaled $1.355 billion, up 13.6% year-over-year (12.2% adjusted for FX). Millerchip said the September 2024 U.S. and Canada membership fee increase accounted for about one-third of the membership income growth. Excluding the fee increase and FX, membership income grew 7.5%, driven by a larger member base and executive membership upgrades.
At quarter end, Costco had 40.4 million paid executive memberships, up 9.5% versus last year, with 82.1 million total paid members (up 4.8%) and 147.2 million cardholders (up 4.7%). The U.S. and Canada renewal rate was 92.1%, down 10 basis points sequentially, while the worldwide rate was unchanged at 89.7%.
Management attributed the slight U.S./Canada decline to online signups growing as a share of the base and renewing at slightly lower rates than warehouse signups. Millerchip said the company is using targeted digital communications and retention strategies to improve renewal rates among newer online members and noted continued focus on auto-renew initiatives.
Margins, costs, and notable items
Costco’s reported gross margin rate increased to 11.02% from 10.85% a year ago. Millerchip said gross margin was higher by 17 basis points year-over-year (11 basis points higher excluding gasoline deflation). He also noted a non-recurring legal settlement that positively impacted gross margin by five basis points, while LIFO had a four-basis-point negative impact, reflecting a $12 million LIFO charge versus a $12 million credit a year earlier.
Core-on-core margins increased 22 basis points, which Millerchip said was broad-based across non-food, food and sundries, and fresh. He said the difference between reported core margins and core-on-core margins was driven by mix changes, higher 2% executive rewards, and lower income from the co-brand credit card program compared with last year.
SG&A as a percentage of sales rose to 9.19% from 9.06% last year. Millerchip said operations productivity improvements offset prior wage investments and the impact of extended operating hours, but the quarter included an increase in general liability reserves that negatively impacted SG&A by six basis points.
Pricing, tariffs, and merchandising highlights
CEO Ron Vachris said the “future impact of tariffs remains extremely fluid,” noting that recently eliminated IEEPA tariffs were replaced with new global tariffs for at least the next 150 days. He said Costco’s strategies to mitigate tariff impacts include shifting countries of production where appropriate, consolidating global buying, leaning into Kirkland Signature, and sourcing more items domestically.
On potential IEEPA tariff refunds, Vachris said it is unclear what the process will be, whether refunds will be received, and when. He added that in many cases Costco did not pass the full tariff costs on to members and emphasized the company’s intent to return value to members “through lower prices and better values” if refunds are received.
Vachris reiterated Costco’s approach to pricing, saying the retailer aims to be “the first to lower prices and the last to raise them.” Management said prices were lowered on items including eggs, cheese, coffee, and certain paper products as commodity inflation eased, and that Costco has been lowering prices on certain tariff-affected items such as some textiles, bedding, and cookware. Millerchip also cited several Kirkland Signature price reductions during the quarter, including Kirkland Signature butter, organic coconut water, organic seaweed, and Italian extra virgin olive oil.
In merchandising, Millerchip said fresh comparable sales were up low double digits, led by meat and bakery, while non-food comps were up high single digits with top-performing departments including gold and jewelry, tires, majors, health and beauty, and small electrics. Food and sundries comps grew mid-single digits, led by candy and packaged foods. He described egg price deflation as an ongoing headwind to sales in food and sundries, though Costco is seeing unit and market share gains in eggs.
Expansion, digital initiatives, February sales, and capital priorities
Costco ended the quarter with 924 warehouses worldwide after opening four warehouses since the prior call, including one U.S. relocation, one net new U.S. location, and two Canadian business centers. Vachris said the company expects 28 net new openings in fiscal 2026 and is targeting “30+ new openings per year” in the coming years. In Q&A, management said the company is pursuing more creative real estate formats—such as parking decks and mixed-use developments—to reach harder-to-enter urban markets, supporting its goal of about 30 openings per year over a five-to-10-year horizon.
Vachris also detailed initiatives aimed at improving checkout speed and productivity, including mobile wallet enhancements, pharmacy pay-ahead, employee pre-scan technology, and pilots of automated pay stations that allow members to pay for pre-scanned orders with an average transaction time of around eight seconds.
For February (four weeks ended March 1), Millerchip reported net sales of $21.69 billion, up 9.5% year-over-year, and total company comparable sales of 7.9% (7.0% adjusted for gasoline deflation and FX). Digitally enabled sales rose 21.8% (20.8% adjusted for FX). He noted the Lunar and Chinese New Year timing shift positively impacted February other international and total company sales by approximately 4% and 0.5%, respectively.
Capital expenditures were $1.29 billion in Q2, and Millerchip said full-year CapEx is expected to be about $6.5 billion, reflecting investments in new warehouses, remodels, depot expansion, and digital enhancements. He also addressed capital return priorities, saying Costco’s strategy remains focused on investing in the business, growing the regular dividend, and buying back stock to avoid dilution, while noting that the board will continue to review the possibility of a special dividend but that there were no plans to share at this time.
About Costco Wholesale (NASDAQ:COST)
Costco Wholesale Corporation operates a global chain of membership-only warehouse clubs that sell a wide array of merchandise in bulk at discounted prices. The company’s product mix includes groceries, fresh and frozen food, household goods, electronics, apparel, and seasonal items, augmented by its prominent private-label brand, Kirkland Signature. Costco’s business model centers on annual membership fees and high-volume, low-margin sales, designed to drive repeat purchasing and strong customer loyalty among both consumers and small-business buyers.
Beyond merchandise, Costco provides a range of ancillary services that complement its warehouses, including gasoline stations, pharmacy and optical services, hearing aid centers, photo services, and travel and insurance products.
