Costco Wholesale Corporation (NASDAQ: COST) beat consensus on both the top and bottom lines in Q4, but the headlines only tell part of the story. Revenue rose 11.1% to $95.7 billion, clearing the $94.97 billion estimate, while diluted EPS of $6.75 topped the $6.54 forecast by 3.2%. The beat was clean. The real signal is in the company's digital trajectory and the health of its core merchandise margins.
Net sales hit $93.9 billion, up 11.2% from a year ago. Comparable sales rose 9.4% overall, or 6.7% when stripping out gasoline price swings and foreign exchange. That adjusted comp is the cleanest read on underlying demand, and at 6.7% it represents a deceleration from Q3's 7.4%. Still, traffic growth held steady at 3.3%, and the average ticket rose 3.3% on an adjusted basis. Shoppers are visiting more often and spending more per trip.
A new growth engine is humming quietly. Digitally-enabled comparable sales surged 19.5% (19.8% adjusted), and e-commerce site and app traffic jumped 30%. The top categories were pharmacy, home furnishings, and small electrics. That 30% traffic gain is not coming from a low base; Costco's digital business has been compounding at double-digit rates for several quarters. The company is expanding third-party same-day delivery channels in the U.S. and rolling out personalization enhancements in email and online product placement. These are not one-off initiatives. They represent a structural shift in how Costco captures incremental spend from its members.
Membership income grew 7.3% to $1.85 billion, with the worldwide renewal rate holding at 89.8%. Executive memberships reached 42.3 million, now accounting for 75.6% of sales. That penetration rate is a powerful flywheel: executive members spend more per trip, and their higher renewal rates provide a buffer against churn. The 7.3% membership fee growth is slightly below the 7.7% ex-FX figure, meaning foreign exchange was a modest headwind, but the underlying trend is healthy.
Gross margin contracted 11 basis points to 11.02%, entirely driven by gasoline price impacts. Excluding gas, gross margin expanded 20 bps, and core-on-core sales margin (which strips out the IEEPA tariff refunds) expanded 18 bps. That is the metric to watch. It tells you Costco's merchandise margins are improving even as it reinvests tariff refunds into lower prices for members. The company highlighted several price cuts on Kirkland Signature items, including walnuts (from $13.79 to $9.99) and Colombian whole bean coffee (from $21.99 to $19.99). These are structural price reductions funded by tariff refunds and supply chain efficiencies. If tariff refunds lapse, Costco will have to absorb those cuts or reverse them, pressuring margins or alienating members.
The $0.15 per share non-recurring benefit from IEEPA tariff refunds is worth parsing. Excluding it, EPS grew 12.4% to $6.60, still a solid beat against the $6.54 estimate. The company partially reinvested those refunds into member value, consistent with its long-standing philosophy. The non-recurring label matters: this is not a repeatable tailwind. Next year's Q4 comparison will be tougher if refunds do not recur at the same magnitude.
Costco opened 14 new warehouses in Q4, bringing the total to 939. The company plans to reach 967 by the end of FY2027, implying roughly 28 net new openings over the next two fiscal years. That is a measured pace for a company with $297 billion in annual revenue. The capital allocation story is not about aggressive expansion; it is about steady, high-return unit growth funded by operating cash flow of $15.8 billion for the fiscal year. Capex was $6.4 billion, leaving ample free cash flow for dividends ($2.5 billion) and share repurchases ($848 million). The buyback is modest relative to the $397 billion market cap, but it is consistent and accretive.
Looking ahead, the picture hinges on whether the digital acceleration can sustain its momentum and whether core-on-core margin expansion continues. The 18 bps improvement in core-on-core sales margin suggests Costco's pricing power and supply chain discipline are intact. But the deceleration in adjusted comparable sales from 7.4% in Q3 to 6.7% in Q4 is a data point worth watching. If that trend continues into FY2027, the digital growth and membership fee income will need to carry more of the weight. For now, Costco is executing at a high level, and the Q4 print confirms the model is working even as the macro environment shifts.