--- title: "Inflation Resurges, COST Stays Resilient" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/41250592.md" description: "Global discount retail leader — $Costco Wholesale(COST.US) — reported after-hours on May 29 its FY2026 Q3 results for the period ended May 10. Overall performance remained very resilient, broadly in line with market expectations.By contrast, Dolphin Research believes the company’s prints offer a useful lens into shifts in US consumer health. That may be the more interesting angle.On the headline numbers, the key narrative this quarter was US–Iran tensions pushing up oil and commodity prices, lifting both revenue and costs. On revenue, total sales rose 11.6% YoY this quarter..." datetime: "2026-05-29T05:50:58.000Z" locales: - [en](https://longbridge.com/en/topics/41250592.md) - [zh-CN](https://longbridge.com/zh-CN/topics/41250592.md) - [zh-HK](https://longbridge.com/zh-HK/topics/41250592.md) author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)" --- # Inflation Resurges, COST Stays Resilient Global discount retail leader — $Costco Wholesale(COST.US) reported FY26 Q3 results (quarter ended May 10) after the close on May 29. Overall, results remained solid and broadly in line with the Street. More interesting, in our view, is what the print implies about U.S. consumer health. **1)** On headline results, **the key narrative this quarter is the U.S.–Iran conflict driving higher oil and broader goods prices, lifting both revenue and costs.** Revenue rose 11.6% YoY, accelerating vs. 9.2% in Q2 and marking the first double‑digit growth since 2022, beating expectations. Operating profit was $2.82bn, up 11.3% YoY; amid inflation, OPM dipped just 1bps YoY, with no sign of revenue growing without profit. **2) Comp growth re‑accelerated, still price‑led:** On core metrics, **total comps rose 9.8% YoY, a clear step‑up from 7.4% in Q2.** Structurally, **traffic rose only 2.4% YoY, decelerating from 3.1%.** **Average ticket jumped 7.3% vs. 4.2% last quarter.** It is clear that **higher comps were driven by surging fuel and broadly higher goods prices, while consumption willingness/capacity among Western middle‑income consumers weakened** (as seen in traffic). **3) U.S. most resilient:** By region, **ex‑FX and fuel, U.S. comps rose 6.8% YoY, the only market to accelerate this quarter.** The lift was still price‑led, as **U.S. traffic growth slowed notably from 2.4% to 1.8%.** By contrast, **Canada and Other Intl comps both slowed QoQ,** underscoring the stronger U.S. resilience to macro shocks. **4) E‑com still leads:** Unlike slowing store traffic, **Costco e‑com sales rose ~22% YoY, roughly stable vs. Q2.** Meanwhile, **online traffic accelerated to 37% this quarter.** With inflation showing signs of re‑acceleration, **U.S. consumption is again shifting online**, a trend widely seen across grocery channels. **5) Member growth off the bottom; price‑hike tailwinds fade:** Membership fee revenue was ~$1.37bn, +10.7% YoY, with growth decelerating QoQ. That said, **paid members rose by 0.8mn QoQ vs. +0.7mn in Q2,** a modest improvement. Also, **North America renewal rate ticked up 10bps after several quarters of declines,** suggesting better momentum. The slower growth in fee revenue mainly reflects **the membership price hike that began in Q3 last year,** with tailwinds fading on a higher base; **Avg. fee per member YoY growth narrowed to 6.3% from 8%+.** Further narrowing is likely. **6) Cost discipline offsets GP pressure; profit held up**: Inflation lifted tickets and top‑line growth, **but the impact on gross profit and costs was larger.** **Retail GPM was 11.04%, down 21bps YoY.** Core grocery GPM fell by a larger 46bps, partially offset by ancillary businesses and a positive LIFO impact. The company has said that under inflation, **it first absorbs pricing pressure rather than fully passing it through, to defend price leadership.** This quarter bears that out. At the same time, **tight opex control offset GP pressure, with opex ratio down 20bps YoY,** mainly from in‑store efficiency gains. With GP and opex ratio narrowing by similar magnitudes, **OPM dipped just 1bps YoY, keeping profit growth broadly aligned with revenue — a solid outcome.** **Dolphin Research view:** Costco remains highly resilient. Amid geopolitical volatility and a fresh inflation uptick, it benefited from inflation on sales while **holding margins via cost control, effectively enjoying the upside without meaningful downside — testament to best‑in‑class execution.** This print should be a positive for the stock. That said, as we have noted, Costco’s revenue and profit growth typically fluctuate within low‑to‑mid single digits, so single‑quarter results rarely move the stock much absent a structural shift. Valuation swings and market style tend to be bigger drivers. On valuation, the Street expects FY27 profit of roughly $10bn, implying ~44x on the current mkt cap, around the 80th percentile vs. historical peaks, which is not obviously compelling. Hence, we find it more useful to read U.S. consumer signals through Costco’s print. Both company data and U.S. Census statistics show that **post U.S.–Iran conflict, higher inflation did not dent retail sales; growth has instead accelerated.** Beyond the nominal lift from early‑stage inflation, equities’ wealth effect and Mar–Apr tax refunds also supported spending. More importantly, **U.S. in‑store traffic growth at Costco continues to slow to below 2%.** While some of this reflects natural channel shift to online, persistently high prices could bite more after a lag, posing a risk to consumption. **Details below:** **I. U.S. keeps weakening; comps lack true improvement** **1) Big step‑up in comps — the inflation effect** Core metric: **total comps rose 9.8% YoY vs. 7.4% in Q2,** above expectations and optically strong. Yet **traffic was up only 2.4% YoY,** slower than 3.1% in Q2, while **avg. ticket surged 7.3% vs. 4.2%.** Together, **higher comps were driven mainly by the fuel spike and broad price inflation; under price pressure, Western middle‑income consumers’ willingness to spend has softened** (as seen in traffic). Ex‑fuel and FX, **comp growth was 6.6%, slightly below 6.7% in Q2,** reinforcing the point. **2) In the conflict backdrop, U.S. demand proves more resilient** By region and on a like‑for‑like basis excluding FX and fuel, the largest market — **U.S. comps rose 6.8% YoY, the only true acceleration** (vs. 6.4% in Q2), implying broader price inflation even ex‑fuel. **U.S. traffic growth fell to 1.8% from 2.4% last quarter,** marking five straight quarters of deceleration and highlighting **pressure on North American retail (at least the mid‑income cohort).** In **Canada and Other Intl,** ex‑fuel/FX **comp and traffic growth both slowed QoQ,** showing U.S. outperformance in inflation resilience. **3) Online continues to outperform** **E‑com sales rose 21.5% YoY, roughly steady QoQ,** and ~21% ex‑FX, remaining a clear growth engine. Per management, **online traffic accelerated to 37% YoY,** and as seen at Walmart, e‑com’s role should keep rising. 4) With higher avg. ticket on inflation, **merchandise sales rose 11.6% YoY, up from 9.8% in Q2,** the first return to double‑digit growth since 2022. **II. Membership fee growth slowed, but renewals and adds improved off the bottom** On subscriptions, **membership fee revenue was ~$1.37bn, +10.7% YoY,** with a notable QoQ slowdown. On quantity, **paid members rose by 0.8mn QoQ,** still modest but improving. Meanwhile, **North America renewal rate ticked up 10bps after several quarters of declines.** Overall renewal held at 89.7%. Thus, **the slowdown in fee revenue mainly reflects last year’s Q3 fee hike,** so price tailwinds fade on a higher base; **avg. fee per member YoY growth narrowed to 6.3% vs. 8.5% in Q2.** That does not signal weaker operations, but fee growth will likely converge toward member growth (Approx. 4%–5%). Combining retail and membership, total revenue was ~$69.2bn, +11.6% YoY and slightly ahead of estimates. **III. GP narrowed under inflation, but cost control kept margins steady** While price inflation accelerated nominal revenue, **the impact on GP and costs was larger.** **Retail GPM was 11.04%, down 21bps YoY.** Core grocery GP fell 46bps YoY, partially offset by ancillary businesses and a positive LIFO contribution. Management has reiterated that under inflation, **it absorbs cost pressure first and delays pass‑through to protect price leadership.** This quarter followed that playbook. As a result, retail GP was ~$7.64bn, +9.6% YoY, lagging top‑line growth. Fortunately, **opex ratio fell 20bps YoY** on cost discipline, with 12bps from store ops, 3bps from HQ, and 5bps from normalized vacation accruals. Thus, most of the GPM compression was offset by opex, and **OPM fell just 1bps YoY,** a minimal impact. Operating profit was $2.82bn, +11.3% YoY, with no sign of negative operating leverage. Net income rose 13.8% to $2.19bn, helped by higher interest income ($160mn vs. $90mn last year) and a lower tax rate (25.2% vs. 26.2%). **** **Dolphin Research prior work on Costco:** **Earnings reviews:** **Dec 12, 2025 review:** [**U.S. Gov. shutdown 'victim'? Is Costco the last leg down**](https://longportapp.cn/en/topics/37085664) **Sep 26, 2025 review:** [**Middle class under strain — headwinds for Costco?**](https://longportapp.cn/en/topics/34514601) **Sep 26, 2025 transcript:** [**Costco (Trans): 35 new clubs in FY26; minimize price hikes**](https://longportapp.cn/enN/topics/34515017) **May 30, 2025 review:** [**Trump tariff blitz; Costco remains rock solid**](https://longportapp.cn/en/topics/30184761) **May 30, 2025 transcript:** [**Costco (Trans): Tariff impact to last all year, but manageable**](https://longportapp.cn/en/topics/30189767) **Mar 7, 2025 review:** [**Volatile U.S. market? Costco stays steadfast**](https://longportapp.cn/en/topics/27905102) **Mar 7, 2025 transcript:** [**Costco (Trans): No clear inflation yet; watch tariffs**](https://longportapp.cn/en/topics/27905477) Risk disclosure and statement: [Dolphin Research disclaimer and general disclosure](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [COST.US](https://longbridge.com/en/quote/COST.US.md)