Costco Q1 FY2026 Analysis: Membership Fees and Digital Growth

For investors and retail enthusiasts alike, Costco Wholesale Corporation remains a fascinating case study in consistency and scale. As the world's premier membership warehouse club, Costco operates on a high-volume, low-margin business model that relies heavily on membership loyalty to subsidize its aggressive pricing strategy. We are digging into the income statement from their latest 10-Q filing to see how the company performed in the first quarter of fiscal year 2026.

To better visualize how Costco converts its massive revenue streams into net income, take a look at the flow diagram below representing the quarterly results:

The Power of the Membership Model

The most critical component of Costco's profitability is often hidden in plain sight: membership fees. While merchandise sales account for the vast majority of revenue, the margins on those goods are razor-thin by design. It is the membership income that flows almost entirely to the bottom line.

For the quarter ended November 23, 2025, Costco generated $1.33 billion in membership fees, a robust 14% increase over the same period last year. This growth was driven by a combination of fee increases and new member sign-ups, with the total paid member count reaching 81.4 million. Total revenue (sales plus fees) climbed to $67.3 billion, up from $62.2 billion a year prior.

Comparable Sales and the Digital Shift

A key metric for retailers is "comparable sales" (often called same-store sales), which measures revenue growth from locations open for at least one year. This filters out the noise of new store openings to show the underlying health of the business.

Costco reported a solid 6% increase in total company comparable sales. However, the standout figure in this report is e-commerce. Digitally-enabled comparable sales surged 21%, signaling that Costco’s efforts to improve its online presence and logistics are paying significant dividends.

Another interesting dynamic appeared in the gasoline segment. While the volume of gas sold increased by 4%—driving foot traffic to warehouses—deflation in gas prices actually created a slight drag on overall net sales figures. This highlights Costco's role as a volume leader; they accept lower prices at the pump to maintain their value proposition to members.

Margins and Profitability

Costco is famous for capping its markups, which is evident in its gross margin profile. Gross margin came in at 11.32%, a slight increase of four basis points from last year. To put this in perspective, traditional retailers often operate with gross margins double or triple this figure. Costco's ability to generate $2.0 billion in Net Income (up from $1.8 billion last year) on such slim margins is a testament to their operational efficiency.

Selling, General, and Administrative (SG&A) expenses—essentially the cost of running the business—remained disciplined at 9.60% of net sales. Keeping this number low is essential for Costco to maintain its price advantage over competitors like Walmart's Sam's Club or Amazon.

Summary

Costco’s Fiscal 2026 is off to a strong start. The company successfully navigated a complex environment where gasoline price deflation weighed on top-line revenue, offsetting it with higher volumes and a double-digit surge in e-commerce activity.

With $4.50 in diluted earnings per share (up from $4.04), Costco continues to demonstrate that its subscription-based warehouse model is resilient. As consumers continue to hunt for value amidst fluctuating economic conditions, Costco’s ability to retain members and grow its digital footprint places it in a formidable position against both brick-and-mortar and digital competitors.