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# Costco Sells Groceries Near Cost. It Earns at the Door.
- URL: https://www.earningsdriver.com/costco-earns-at-the-door/
- Published: 2026-09-28T00:34:55.000Z
- Updated: 2026-09-28T01:17:54.000Z
- Author: Heejung Chang

**In one line:** Costco caps the markup on what it sells at about 14–15% over cost, so once the warehouses are paid for, the goods earn very little. About half of its operating income is the membership fee people pay to shop there, and they keep paying because they trust the prices. Watch the renewal rate and membership fee income.

**At a glance**

- **Driver:** members who renew every year and pay a fee that is almost all profit
- **The one number:** membership fee income (FY2026: $5.9 billion, about half of $11.7 billion in operating income), with a renewal rate of 92.3% in the US and Canada in Q4 FY2026
- **Biggest risk:** members' trust in the value. If fees or prices climb too fast, renewals slip.
- **Reports:** sales every month, early in the following month; quarterly results in December, March, May and September (fiscal year ends on the Sunday nearest the end of August)

On September 24, Costco reported its fiscal 2026 results: net sales of $297.2 billion for the year ended August 30, 2026, up 10.1%, and $93.9 billion in the 16-week fourth quarter, up 11.2%. Busy warehouses explain the **revenue**. They do not explain **where the profit comes from**. Costco made $11.7 billion in operating income in FY2026, and $5.9 billion of it, about half, was membership fees. The goods, more than $290 billion of them, earned the other half: about two cents on each dollar of sales. And the fourth quarter was the last one lifted by the fee increase of September 2024, so from here fee growth has to come from more members and upgrades.

## What it sells vs. what it earns on

Costco sells groceries, household goods, gasoline and a rotating mix of everything else, at a markup it deliberately holds down. Its long-standing internal ceiling is 14% over cost on national brands and 15% on its own Kirkland Signature label. Gasoline and everyday staples carry less, so the reported gross margin on everything it sells was 11.02% of sales in Q4 FY2026\. Running the warehouses took 8.94%, leaving about two cents on the dollar.

What it earns on is the right to shop there. Membership in the US and Canada costs $65 a year, or $130 for the Executive tier, which pays a 2% reward on purchases, capped at $1,250 a year. Costco had 84.1 million paid members at the end of FY2026, and 42.3 million of them were Executive. A basic membership costs almost nothing to provide, so nearly all of the fee drops to profit.

In effect, the fee is the part of the markup Costco chooses not to charge at the register, collected in advance: paid once a year at the door instead of basket by basket. Members renew because they believe the goods are cheap and good. That belief is what protects the fee, and two things keep the prices low enough to earn it. Kirkland Signature, around a third of sales, lets Costco undercut the national brand and still earn a better margin than reselling it. And a warehouse carries only around 4,000 items, so each item is bought in enormous volume, which gives Costco the buying power to get it cheaper.

## What moves the profit

Costco reshapes the basic profit line (**price × quantity, minus cost**) into its own:

> **Profit ≈ (membership fee × paying members) + (thin markup × goods volume) − operating cost**, where the fee is the store's own markup, taken at the door

The handful of things that move it:

- **Renewal rate.** The share of members who pay again. Each point of renewal is recurring, almost pure profit.
- **Executive upgrades.** An Executive member pays $130 instead of $65\. The 2% reward gives part of that back, but it also ties more of the member's shopping to Costco.
- **Traffic through each warehouse.** A warehouse costs about the same busy or quiet. More trips and bigger baskets spread that cost further, and inventory turns back into cash faster. The gas stations earn little on each gallon, but cheap gas is one more reason to make the trip.
- **Kirkland Signature share.** The threat of a Kirkland version pushes national brands to sell to Costco cheaper.
- **Fee increases.** Rare and deliberate. The last one, in September 2024, came seven years after the one before.

## Reading the earnings: what to watch, and how

Costco reports sales monthly and full results quarterly (investor.costco.com). Sources that work for any company are gathered in [Where to find the numbers](https://www.earningsdriver.com/numbers/).

- **Monthly comparable sales, excluding gas and currency.** *Read it:* gas prices swing reported sales without saying much about members, so read the comparable figure that strips out gasoline and exchange rates. Steady mid-single-digit growth means members are still shopping, though part of it is higher prices, so set it against grocery inflation. A slowdown that lasts several months matters more than one weak month. *Latest:* adjusted comparable sales rose 6.7% in Q4 FY2026 and 6.6% for the full year. Sales for Costco's September period (five weeks ending October 4) are due on October 7.
- **Membership fee income, against the last fee increase.** *Read it:* for about two years after a fee increase, fee income rises even if nothing else changes, because fees are booked over each 12-month membership and members renew at the new price through the year. After that, growth has to come from more members and more Executive upgrades. *Latest:* $1.85 billion in Q4 FY2026, up 7.3%. Management said Q4 was the last quarter with a year-over-year benefit from the 2024 increase. Excluding the fee increase and currency, fee income grew 6.8%.
- **Renewal rate and paid members.** *Read it:* renewal is the trust in the value. Watch the US-and-Canada rate, where most members are: about four in five of Costco's warehouses are there. A dip of a point or two is an early warning. Paid-member growth shows whether new warehouses and new countries keep adding members. *Latest:* 92.3% in the US and Canada and 89.8% worldwide in Q4 FY2026, each up 0.1 point from the previous quarter. Paid members rose 3.8% to 84.1 million; Executive members rose 9.4% to 42.3 million.
- **Gross margin, and why it moved.** *Read it:* Costco does not try to widen this margin. A dip from cutting prices is the model working. A rising margin while sales slow would be the worrying mix, because it would mean Costco keeping more of each sale instead of passing it to members. Gas prices and one-time items move it too, so read management's explanation. *Latest:* 11.02% in Q4 FY2026, against 11.13% a year earlier. Excluding the effect of higher gas prices, it rose 0.2 point. A LIFO charge (an accounting charge for rising inventory costs) took 0.11 point, and refunded US import tariffs, after part went into price cuts, added a one-time $0.15 a share.
- **New warehouses and capital spending.** *Read it:* new warehouses are where new members come from. They cost money up front and take a few years to reach full volume. *Latest:* 939 warehouses at the end of FY2026\. Costco plans 33 openings in FY2027, five of them relocations, and about $7.5 billion of capital spending, up from $6.4 billion.

## Leading indicators (outside Costco's filings)

These often move before Costco's own numbers.

- **Gasoline prices.** Weekly pump prices show which way gas will push reported sales and the margin. *(price)*
  - *When:* weekly. *Where:* the US Energy Information Administration's retail gasoline price series.
- **Grocery inflation.** Rising prices lift the average basket, and they also test the value promise. *(price, demand)*
  - *When:* monthly. *Where:* the US consumer price index for food at home (Bureau of Labor Statistics).
- **Sam's Club results.** Walmart's membership warehouse competes for the same shoppers. Its membership income and comparable sales show how the category is doing. If they grow faster than Costco's, Costco may be losing shoppers to it. *(competition)*
  - *When:* quarterly, with Walmart's results. *Where:* Walmart's earnings release, Sam's Club segment.

## What Wall Street is asking

Analysts on the September 24, 2026 call kept returning to a few questions. What each is really probing:

1. **"What reverses eight quarters of slowing membership growth?"** Paid members still grew 3.8%, but more slowly each quarter. Now that the 2024 fee increase no longer lifts the comparison, fee income depends on that growth.
2. **"Is comparable sales growth normalizing?"** Management put comparable sales excluding gas at 6–7%. The question is whether members are spending the same way as prices and tariffs shift.
3. **"How do international members compare?"** Management said members in Asia are more numerous per warehouse but shop less often and spend less. Growth abroad adds members who spend less each.
4. **"What do tariffs and their refunds do to the margin?"** Refunds lifted the quarter once. The question is how much is passed back into prices.
5. **"Does delivery change the warehouse?"** Digitally enabled sales grew about 20% in Q4 FY2026\. Management sees delivery as extra spending on top of warehouse trips, not a replacement.

Each comes back to the same test: whether members keep shopping, and keep **renewing**.

## A note on valuation

Around $923 a share on September 25, 2026, Costco traded at roughly 44 times its fiscal 2026 earnings, about twice the average for companies that sell everyday necessities. The market is paying for how long the renewal rate holds, not for this year's sales.

## The shape

Costco is a **toll at the door**: it sells goods at a capped markup and earns its profit from the fee members pay to get in. The fee lasts as long as members trust that the goods inside are worth it, so the model protects that trust before it protects the margin.

**Wondering how Costco's model compares with Walmart's?** Walmart earns on the margin per item across enormous volume, and more and more on advertising beside the goods; Costco earns at the door. The two are set side by side in the book: [**Earnings Driver**](https://www.earningsdriver.com/book/).

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*Sources: Costco Q4 and fiscal 2026 results (16 weeks and 52 weeks ended August 30, 2026), September 24, 2026, and earnings call; Costco membership fee announcement, July 2024; valuation from share price and reported EPS as of September 25, 2026\. At investor.costco.com unless noted.*

*Educational only, not investment advice. Figures as of the periods noted.*