Costco Wholesale Corp (NASDAQ: COST) delivered solid results for the third quarter of fiscal 2026. Most retailers would envy the report… but Wall Street found reasons to unload COST shares.
The warehouse giant reported fiscal third-quarter revenue of $70.53 billion, topping analyst expectations, while adjusted earnings per share rose 15% year over year to $4.93. Traffic remained strong, membership fee revenue climbed, and fresh foods continued to help drive store visits.
Yet shares fell following the Friday earnings release, and it’s not another case of investors merely “selling the news.” Rather, investors focused on what’s actually driving the numbers.
A significant portion of Costco’s sales growth came from higher gasoline prices. While fuel sales helped boost revenue, gasoline remains one of the company’s lowest-margin categories. As a result, stronger fuel volumes contributed less to profitability than growth in higher-margin merchandise categories would have.
When fuel prices and foreign exchange impacts were stripped out, same-store sales growth moderated to 6.6% – still a healthy number by most retail standards, but slower than some investors had hoped to see from a company trading at a premium of more than 49 times earnings.
Membership trends also drew scrutiny.
Costco Membership Growth Isn’t as Strong as It Seems
Costco ended the quarter with 82.9 million paid memberships, an increase of 4.1% from a year ago, while membership fee revenue rose 10.7% to $1.37 billion. Those remain impressive figures, but analysts noted that membership growth has been slowing on a sequential basis.
That’s important; memberships remain the foundation and bedrock of Costco’s business model. Membership fees historically account for a significant share of the company’s operating profit and help fund the low-price strategy that has kept shopper-members coming back for decades.
For grocery operators, the quarter offers an interesting reminder that Wall Street and consumers often evaluate retailers through very different lenses.
Shoppers continue to reward Costco for value, fresh foods, and one of the most compelling membership propositions in the business.
Investors, on the other hand, are increasingly focused on whether growth is accelerating fast enough to justify that 49.18 price/earnings ratio – one of the richest valuations in retail.
The result is a story we’ve seen before: a strong operating quarter that wasn’t quite strong enough for Wall Street.
