Costco Wholesale (NASDAQ: COST) posted a mixed third quarter. Net sales climbed 11.6% to $69.15 billion, just shy of the $69.68 billion consensus. Yet diluted EPS of $4.93 topped the $4.98 estimate, rising 15.2% from $4.28 a year ago. The real story lies in the gap between the top-line miss and the bottom-line beat: membership income and disciplined cost control made up for a revenue print that came in a hair light.
Total company comparable sales rose 9.8% (6.6% adjusted for gasoline and foreign exchange). In the US, comps were up 9.4% (6.8% adjusted), Canada +10.7% (+6.2% adjusted), and Other International +11.2% (+5.9% adjusted). Traffic growth was modest at 2.4% globally, with ticket growth doing the heavy lifting at 7.3% (adjusted). That split matters. Traffic is the cleaner read on underlying demand, and 2.4% is solid but not spectacular for a retailer that routinely posts mid-single-digit traffic gains. The ticket growth reflects both price increases and mix shifts toward higher-ticket categories.
The digital channel was the standout. Digitally-enabled comparable sales surged 21.5% (20.8% adjusted), driven by pharmacy, gold and jewelry, home furnishings, and tires. E-commerce site and app traffic rose 37%. Costco is not typically thought of as a digital-first retailer, but these numbers suggest its online operation is becoming a material growth engine rather than a convenience add-on. The company is scaling push notifications, expanding mobile cake ordering, and rolling out its Pre-Scan feature internationally. These are operational details, not flashy tech bets, and they are working.
Membership income rose 9.9% to $1.37 billion (10.7% ex-FX). Executive membership penetration hit 75.0% of sales, and the worldwide renewal rate held at 89.7%. Membership fees are the profit engine that lets Costco operate on razor-thin merchandise margins. The 9.9% growth rate comes from both new sign-ups (paid memberships grew 4.1% to 82.9 million) and the ongoing shift to higher-fee Executive memberships. As long as that penetration rate keeps climbing, membership income growth should outpace sales growth. That is a structural advantage most retailers cannot replicate.
Gross margin contracted 21 basis points to 11.04%, but excluding gasoline it was flat. The core-on-core sales margin (a measure Costco tracks internally) dipped just 9 bps on an adjusted basis. SG&A improved 20 bps to 8.96% (2 bps ex-gas). The margin story is one of stability, not compression. Costco's model is built on low prices funded by membership fees, not merchandise markups. Gross margin fluctuations from gasoline prices and category mix are normal. The 20 bps SG&A improvement suggests operating leverage is intact despite wage and occupancy cost pressures.
Net income rose 15.2% to $2.19 billion. Operating cash flow for the first 36 weeks was $11.13 billion, up from $9.47 billion a year ago. Capital expenditures ran at $4.23 billion, funding 12 new warehouses opened year-to-date (including 3 in Q3) with an estimated 12 more planned for the rest of fiscal 2026. The balance sheet remains fortress-grade: $18.95 billion in cash and equivalents against $5.67 billion in long-term debt.
The company provided no forward guidance, which is standard for Costco. But the absence of a guidance raise after a quarter that arguably justified one is worth noting. Management is not signalling caution so much as sticking to its longstanding policy of not offering quarterly forecasts. Investors should take the lack of guidance as neutral, not negative.
What to watch next: digital momentum and membership penetration. If the 21.5% digital comp growth persists, it will begin to move the needle on overall revenue mix. And if Executive membership penetration pushes past 75%, the compounding effect on membership income will become even more pronounced. Costco's model is built for steady compounding, not quarterly heroics. This quarter was a reminder that even when revenue comes in a touch below expectations, the underlying machinery works just fine.