Costco's Members Keep Spending. But It's Walmart That Earns Our Buy
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| By Gavin Magor |
If you've pushed a cart through Costco (COST) lately, you've been part of one of the clearest reads on the American shopper we'll get this month.
The warehouse club’s fourth-quarter numbers, released after the close last Thursday, were excellent.1 But the checkout lines told a better story.
Here's what's in members' carts. And why the bargains are in the warehouse, not the stock.
Bargain-Hunters Who Still Buy Wagyu
Chief Financial Officer Gary Millerchip described members as resilient.
They're also choosy.
While they hunt for value on everyday items like ground beef and poultry, they still splurge where they see a deal: prime beef, wagyu, fragrances, even massage chairs.
Outside of food, gold and jewelry led the way.
Then there's the high end. As Millerchip put it on the earnings call:
“During fiscal year 2026, Costco sent over 750,000 members on cruises, an increase of 16%. One of those members booked a 154-night cruise on Regent Seven Seas at a cost of over $218,000. This member will receive an $8,800 shop card as they conclude their cruise.
“We continue to make progress on digital and fiscal year 2026. Digitally enabled sales, which include third-party delivery, exceeded $33 billion and was an increase of more than 20%.”
And digital keeps pulling ahead. Visits to Costco's website and app jumped 30% in the quarter, helped by a nationwide rollout on DoorDash (DASH).2
Millerchip added that shoppers who find Costco through AI search tools buy at the highest rate of any traffic source.
That's a story probably only Costco could tell.
Especially when most of us are watching the price of walnuts and coffee.
Tariff Refunds You Can See on the Shelf
During the quarter, Costco received $184 million in refunds of tariffs imposed under the International Emergency Economic Powers Act (IEEPA).3
That's a little more than a third of the total it expects to collect.
Rather than bank all of it, Costco put much of it back into lower prices.
Management pointed to cuts on everyday produce, meat and beverages, plus home furnishings and hardware.
Kirkland Signature walnuts dropped from $13.79 to $9.99.
Kirkland Signature Colombian whole bean coffee went from $21.99 to $19.99.
Costco has already collected a similar amount of refunds in the current quarter.
It plans to keep reinvesting the majority of those dollars into member value.
So if you shop there, expect those savings on staples to stick around for a while.
$218k Cruises and $1.50 Hot Dogs — in the Same Cart
Costco is a useful read on the wider consumer because of its reach.
It has 84.1 million paid members and 150.4 million cardholders.4
And every membership carries a fee just for the right to shop there.
When they keep renewing and keep spending, it suggests the core of household budgets is holding up.
The University of Michigan's final September consumer sentiment reading came in at 48.1 on Sept. 25, a four-month low.5
That's a touch better than the 47.8 preliminary reading, but well below August's 51.7.
Year-ahead inflation expectations finished at 4.6%, up from 4% in August. In other words …
Consumers Feel Worse — Yet Costco's Members Keep Spending
Deloitte sees value-seeking across income levels, with shoppers switching brands and retailers and leaning on promotions.6
Costco's own management said it gained market share this year by capturing a larger share of members' wallets.
Inflation inside the warehouse is running in the low single digits, according to management.
The pressure points are specific: memory chips in consumer electronics, plus gasoline and petroleum-based products.
So if a new laptop or TV is on your holiday list, expect to pay up: Those are among the categories where Costco is seeing prices rise, due to “memory inflation.”
The Numbers Behind the Carts
Net sales for the 16 weeks ended Aug. 30 rose 11.2% to $93.9 billion.
Earnings came in at $6.75 per share, up from $5.87 a year ago and ahead of the $6.53 Wall Street expected.
Even after the reinvestment, the refunds added 15 cents per share to earnings.
Excluding that one-time benefit, earnings per share still grew 12.4%.
Comparable sales, which leave out newly opened warehouses, rose 9.4%.
Higher gasoline prices added about 3% to sales on their own. But strip out gas prices and currency swings, and comparable sales grew 6.7%.
That Growth Came from Both Sides of the Register
Members shopped 3.3% more often, and the average trip rang up 3.3% more, excluding gas and currency.
Management said that 6% to 7% pace has held steady all year.
Comparable-sales growth did cool over the summer, from 7% in June to 6.6% in July and 5.4% in August.
Part of August's dip is the calendar. Labor Day fell a week later this year, which Costco says trimmed August comparable sales by just under 0.75 percentage points.
Meanwhile, the membership base kept growing to 84.1 million paid members, up 3.8%.
Executive members, who pay the higher annual fee, grew faster: up 9.4% to 42.3 million. And members under age 40 now make up more than a quarter of the base.
The renewal rate in the U.S. and Canada ticked up to 92.3%.
What to Expect This Holiday Season
Deloitte forecasts holiday retail sales of $1.7 trillion to $1.71 trillion for November through January, up 4% to 4.8%.7
Bain & Co. expects November and December sales to top $1 trillion for the first time, up 4.5%.8
But Bain also says more than half of that growth will come from higher prices, not fuller carts.
In a season driven more by price than volume, I expect the winners to be retailers with loyal repeat customers, leverage over suppliers and the scale to cut prices when rivals can't.
Costco checks all three boxes.
So does Walmart (WMT), which carries a Weiss rating of “B-,” a “Buy.” It trades at about 39x the past year's earnings.
WMT opened yesterday at $107.90, well under its May 19 high of $135.16.
Target (TGT) is a tougher call, with a Weiss rating of “C+,” a “Hold.”
It's far cheaper, at about 16x the past year's earnings, and opened yesterday at $156.60.
But Morningstar notes its mid-market position leaves it squeezed on price by Walmart, Costco and discount chains.9
That's the risk I'd weigh most heading into the holidays …
Retailers lean on discretionary spending by lower- and middle-income households, where the University of Michigan found sentiment fell more sharply in August.10
Of course, Walmart isn't the only retailer worth watching.
With Weiss Ratings Plus, you can use our proprietary Stock Ratings Analyst to build your own stock shopping list — screening for BUY-rated stocks by industry, market cap, earnings multiple, price, insider ownership and more.
You’ll also get access to one-click screeners and special reports designed to uncover everything from dividend standouts to stocks flashing warning signs.
One Box Costco Doesn’t Check
Costco is one of the best-run retailers in the world, and this quarter proved it again. But a great company is not automatically a great stock at any price.
Costco currently carries a Weiss stock rating of “C+,” a “Hold.”
The shares trade at about 44x the past year's earnings.11
Even after Friday's pop, they closed about 16% below their May 19 record high of $1,096.50.
Wall Street is split on what the stock is worth.
Several firms trimmed their price targets after the report, including JPMorgan, to $1,015 from $1,100, and Wells Fargo, to $950 from $1,000.
BMO Capital held its $1,315 target and called the current valuation a rare opportunity.12
That’s all still above Costco’s current $924.38-per-share price tag. Using those targets, the stock could see anywhere from a 2.8% (Wells Fargo) to 42% (BMO) gain.
But is it worth the risk?
The membership model gives Costco steady, recurring income, and fee income rose 7.3% to $1.85 billion.
But management also said recent membership growth rates are probably more typical going forward.
Paid membership growth has now slowed for eight straight quarters.
Paying a premium multiple for steadiness leaves little room for disappointment.
If you already own Costco, I see no reason to rush for the exit. It is a “Hold,” after all.
If you don't own it, I'd wait for a better price or an upgrade in our rating before buying.
What I'm Watching
- Costco's September sales report, due Wednesday, Oct. 7, after the close, to see whether August's dip was just the Labor Day shift, and whether the 6% to 7% pace is holding without help from gas prices.
- How much of the remaining tariff refunds go into lower prices versus profit.
- Electronics prices heading into the holiday season, as memory costs keep climbing.
- Any change in our Weiss stock ratings on Costco, Walmart and Target.
- How early and how deep holiday discounts run in October, a sign of how hard retailers are competing for shoppers.
Bottom Line
The message from Costco's checkout lines: Shoppers still have money to spend, as long as they believe they're getting a deal.
For the fourth quarter, I'd hold retail stocks to the same standard: Favor the ones delivering value at a sensible price.
Cheers!
Gavin
1 Costco Wholesale Corporation, “Costco Wholesale Corporation Reports Fourth Quarter and Fiscal Year 2026 Operating Results,” Sept. 24, 2026.https://investor.costco.com/news/news-details/2026/Costco-Wholesale-Corporation-Reports-Fourth-Quarter-and-Fiscal-Year-2026-Operating-Results/default.aspx
2 24/7 Wall St., “Costco Q4 2026: $95.7B Revenue, 9.4% Comp Sales Growth,” Sept. 2026.https://247wallst.com/cards/costco-q4-2026-earnings-cost-01m3akd6z57rtsq2hhaynthvrh
3 TradingKey, “Costco Stock Forecast: Q4 Sales Strength Meets a Membership Growth Test,” Sept. 28, 2026.https://www.tradingkey.com/analysis/stocks/us-stocks/262189430-stocks-costco-stock-forecast-q4-earnings-membership-growth-2026-tradingkey
4 GuruFocus via Yahoo Finance, “Costco Wholesale Corp (COST) (Q4 2026) Earnings Call Highlights,” Sept. 2026.https://finance.yahoo.com/markets/stocks/articles/costco-wholesale-corp-cost-q4-050040089.html
5 Advisor Perspectives, “Consumer Sentiment Falls Again in September,” Sept. 25, 2026.https://www.advisorperspectives.com/dshort/updates/2026/09/25/consumer-sentiment-falls-again-in-september
6 Deloitte, “Deloitte Forecasts Holiday Retail Sales to Reach $1.70 Trillion to $1.71 Trillion,” Sept. 2026.https://www.deloitte.com/us/en/about/press-room/deloitte-forecasts-holiday-retail-sales.html
7 Deloitte, “Deloitte Forecasts Holiday Retail Sales to Reach $1.70 Trillion to $1.71 Trillion,” Sept. 2026.https://www.deloitte.com/us/en/about/press-room/deloitte-forecasts-holiday-retail-sales.html
8 Bain & Company, “US Holiday Retail Sales Set to Outpace Last Year's Seasonal Growth Performance to Exceed $1 Trillion for the First Time,” 2026.https://www.bain.com/about/media-center/press-releases/2026/us-holiday-retail-sales-set-to-outpace-last-years-seasonal-growth-performance-to-exceed-$1-trillion-for-the-first-timebain--company-forecasts/
9 Morningstar, “Target's Mid-Market Status Requires Flawless Execution to Defend Margins Amid Mix and Price Pressure.”https://www.morningstar.com/company-reports/1496857-targets-mid-market-status-requires-flawless-execution-to-defend-margins-amid-mix-and-price-pressure
10 University of Michigan, Surveys of Consumers.https://www.sca.isr.umich.edu/
11 TradingKey, “Costco Stock Forecast: Q4 Sales Strength Meets a Membership Growth Test,” Sept. 28, 2026.https://www.tradingkey.com/analysis/stocks/us-stocks/262189430-stocks-costco-stock-forecast-q4-earnings-membership-growth-2026-tradingkey
12 24/7 Wall St., “Costco Has Moved Sideways and Down for 1 Year: One of the Most Respected Wall Street Firms Says 45% Returns Lie Ahead,” Sept. 25, 2026.https://247wallst.com/investing/2026/09/25/costco-has-moved-sideways-and-down-for-1-year-one-of-the-most-respected-wall-street-firms-says-45-returns-lie-ahead/
