--- title: "COST (Trans): tariff refunds to be received within a few months" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/41250783.md" description: "Below is Dolphin Research's Trans of $Costco Wholesale(COST.US) FQ3 2026 earnings call. For our earnings take, see 'Inflation Resurges, Costco Still Resilient'.I. Earnings highlights recap. 1) Key financials: FQ3 2026 (12 weeks ended May 10, 2026) net income of $2.20bn (+15% YoY), with diluted EPS of $4.93.Net sales were $69.15bn (+11.6% YoY). Comparable sales rose 9.8%..." datetime: "2026-05-29T05:57:51.000Z" locales: - [en](https://longbridge.com/en/topics/41250783.md) - [zh-CN](https://longbridge.com/zh-CN/topics/41250783.md) - [zh-HK](https://longbridge.com/zh-HK/topics/41250783.md) author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)" --- # COST (Trans): tariff refunds to be received within a few months **Compiled by Dolphin Research:** notes from $Costco Wholesale(COST.US) FY26 Q3 earnings call. For our earnings take, see [**Inflation Returns, Costco Still Resilient**](https://longbridge.com/en/topics/41250592). **I. Key Takeaways** 1) **Headline financials**: FQ3 2026 (12 weeks ended May 10, 2026) net income of $2.20bn, +15% YoY, with diluted EPS of $4.93. Net sales were $69.15bn, +11.6% YoY. Comps rose 9.8%, or +6.6% ex-gas and FX; digital comps grew 21.5% (+20.8% ex-FX). 2) **Membership fee income**: $1.373bn, +10.7% YoY (+9.9% ex-FX). Over one-quarter of the growth was driven by the US/Canada fee hike; ex-hike and FX, membership fees rose 7% YoY, led by member base growth and upgrades to Executive. Total paid members were 82.9mn, +4.1% YoY, and Executive members reached 41.2mn, +9.6% YoY. US/Canada renewal was 92.2% (+10bps QoQ); global renewal was 89.7%, flat QoQ. 3) **Margins**: GPM was 11.04%, down 21bps YoY; ex-gas inflation, GPM improved 1bp YoY. Core on Core (core merchandise margin) fell 9bps YoY, driven by price investments (eggs, beef) and mix from high-weight businesses (gas, e-comm, pharmacy). SG&A ratio was 8.96%, a 20bps YoY improvement; ex-gas inflation, improved 2bps, with efficiency gains offset by higher medical insurance costs. Q3 LIFO expense was $44mn vs. $130mn in Q3 last year, a positive 14bps contribution to GPM. 4) **Capex and expansion**: Q3 capex was $1.41bn; full-year ~$6.5bn, for new warehouses, remodels, distribution and digital. Net new clubs in Q3: +4, taking the global count to 928. FY26 net adds are now guided to 26 (down 2, pushed to FY27). 5) **Capital returns and cash**: Special dividends remain the preferred mechanism for excess cash, but today’s valuation is well above the level at the last special dividend, implying a higher cash balance is needed to deliver a similar yield. No specific plan yet; the Board will continue to evaluate. Buybacks remain aimed at offsetting exec equity grants to avoid dilution, and regular dividends will rise over time. **II. Call Details** **2.1 Management Commentary** **1) Gasoline** a) Middle East tensions drove a sharp rise in fuel prices in Q3, and gasoline set new company records. The three 4-week fiscal periods posted record fuel volumes, and the final five weeks were the highest five weeks of fuel volume ever. Gas comps were up 20%+, driven by both higher prices YoY and volume acceleration. b) The company leaned into its principle of 'keep shelves full, deliver best value', intentionally widening the price gap vs. the market. Many new members used Costco gas for the first time, which should support long-term loyalty as fuel users typically spend more in-warehouse, visit more often, and renew at higher rates. c) Costco has begun filing IEEPA tariff refund claims through US CBP and expects to submit continuously over the next few months, with refunds to be received 2–3 months after approvals. The portion previously passed through to members will be returned in some form, with timing and amounts subject to actual refunds and litigation progress. **2) Footprint expansion and site selection** a) Q3 net adds: +4 clubs (3 US, 1 Canadian Business Center), bringing global clubs to 928. FY26 net adds are expected at 26 (2 fewer than prior, shifted to FY27). Long-term target remains 30+ net adds per year. b) Ongoing relocations of high-volume clubs, moving smaller legacy Price Club-era boxes (eg, Northeast sites with ~500 parking spaces) to larger locations to expand parking and fuel capacity. Two relocations were completed YTD, with one more planned in Q4. **3) Digital and tech** a) Checkout experience improved meaningfully: enhanced mobile wallets, faster access to the digital membership card in the Costco app, and international rollout of cart pre-scan. Pay station pilots succeeded and are being embedded into new and high-volume clubs. b) Same-day delivery expanded to Spain and France; US Avg. delivery time is under 45 minutes, with 4.8/5.0 member satisfaction. Same-day is growing faster than overall digital, skews to higher-spend members, and is a strong loyalty driver. c) The personalized carousel converts at 3x normal rates, contributing up to ~$0.5bn of e-comm sales in Q3. Site and app traffic rose 37% YoY in Q3. d) AI search: optimizing product detail pages to enhance relevance and visibility in LLMs. AI search traffic is still small but grew triple digits in Q3, with the highest conversion among all traffic sources; partnerships with Google Commerce Media and YouTube advance Retail Media at scale. **4) Merchandising and member value** a) Fresh comps were up high single digits, led by meat (both premium beef and value proteins like ground beef and poultry) and bakery. b) Non-food comps were up high single digits as well, with standout categories including gold jewelry, small appliances, tires, home, major appliances, and health & beauty. Sauna and massage chairs grew nearly 50%, and self-care and beauty (fragrance, haircare, skincare) were particularly strong. c) Food and sundries comps were up mid single digits, led by packaged foods and candy. Egg deflation pressured sales, partly offset by growth in protein snacks and bars. d) Kirkland Signature continues to innovate: Q3 launches included KS energy drinks, ultrafiltered milk, sea salt popcorn, and roasted chicken dog food, priced at least 15%–20% below comparable national brands. Price cuts included KS crispy wings $16.99→$14.99, KS milk chocolate almonds $19.99→$18.99, KS golf balls $32.99→$29.99, and KS King sheet set $89.99→$79.99. e) Ancillary comps were up 20%+, led by pharmacy with notable share gains. Drivers included GLP-1 demand (Wegovy and Ozempic in member prescription plans), pet med discounts, Medicare D over-the-counter Flex, and growth in mail-order and specialty pharmacy. **5) Inflation and supply chain** a) Overall inflation (incl. gas) edged up vs. last quarter; ex-gas, fresh and food & sundries saw deflation on lower produce, eggs, and dairy prices. b) Non-food inflation ticked up slightly, with memory costs impacting computers and related categories; if oil stays high, items with resin, polyester, or cotton components face further cost risk. c) Supply chain is broadly stable, with limited direct exposure to Middle East ocean disruptions, which the company continues to monitor. Buyers pre-purchased select categories to mitigate cost pressure, and inventory is in good shape heading into summer. **2.2 Q&A** **Q: Paid member growth slowed to 4.1% (a multi-year low). Should comps expectations near term be more conservative?** A: On membership fees, ex-hike and FX, growth was 7%, with Executive members up over 9%. That is a positive signal, as Executives spend more and visit more often, underpinning business health and future growth; paid members grew ~4%, together driving the 7% overall growth. Renewals faced pressure as online sign-ups, which renew slightly below in-store, increased as a mix. Targeted digital marketing and retention actions offset this headwind in Q3, stabilizing renewals, and the goal is to push higher from here as these actions scale. Why 4%–5% paid member growth normalizes: no entry into new large Intl markets recently (which previously created step-changes but with lower initial renewal), and the company is comping a tough base. Absent shocks like COVID or new market entries, 4%–5% is a healthy, more normal run-rate, with ample growth runway. No specific comps guidance. Recent trends show strong spending intent and high expectations for quality, value, and newness, which align with current merchandising. Even lapping last year’s big gift card and gold programs, ex-gas comps have been running ~6%–7% with no notable change. **Q: Core on Core margin fell 9bps. Is Costco taking a more aggressive price-investment stance to gain share, and are peers doing the same?** A: The focus is on GPM ex-gas inflation/deflation, which improved 1bp this quarter, despite lapping very strong GPM gains in FY24 and FY25 Q3. Several factors drove the change: mix shift as gas, e-comm, and pharmacy grew their shares, pressuring Core on Core, and a lighter LIFO burden ($44mn vs. $130mn last year) created a window to invest more for members. Costco widened gas price gaps and lowered everyday prices in items like eggs and beef, a deliberate choice given the burden of higher fuel. On competition, Costco views itself as its main competitor; price actions are about delivering member value, not reactive moves, and the market remains rational. Ron added that price moves are strategic, not reactive: when pre-tariff inventory clears and lower-cost goods arrive, prices are proactively cut, and egg price drops were followed quickly, consistent with ‘first to cut, last to raise’. **Q: How do comps break down between traffic and ticket — same-SKU pricing, mix, or bigger baskets?** A: All three contribute: more units per basket, some inflation, and trade-up into larger packs or higher-quality goods. The company does not disclose each factor separately, as they work together as a composite driver. **Q: Are you seeing signs of worsening competition? Some peers cited early inventory clearing and price promos — opportunistic or a structural shift?** A: Competition remains rational. The pricing strategy centers on preserving 'price authority' and sustained member value, not chasing competitors. Margins fluctuate quarter to quarter and single prints should not be over-read; over the past 12–24 months, GPM ex-gas has been broadly stable and Q3 sits within that range. Price changes are strategic, not reactive, for example switching early to lower-cost goods upon receipt or cutting eggs quickly as costs fell, reflecting ‘first to cut’. **Q: With mid-to-high single-digit comps, warehouse OpEx slightly delevered ex-gas (-3bps). Has the operating leverage framework changed?** A: The framework is unchanged. Core operations delivered roughly mid-single-digit bps of leverage, but higher medical insurance and some one-time items offset that; HQ also had legal settlements and reserves impacting central costs. Ex these one-offs, leverage was consistent with the expectation that mid-single-digit comps yield reasonable leverage. Note that gas typically does not produce comparable leverage, so efficiency should be viewed ex-gas. **Q: How do you balance Retail Media opportunities with protecting member experience, and how do you view returns on tech spend?** A: Retail Media is 'member first'. The initial focus is personalization to deliver more relevant messages that save members time and money; on that base, Costco partners with brands on third-party site ads to showcase its Retail Media capabilities. As personalization scales, the lens remains member value, letting CPGs achieve better marketing returns while 80%–90% of Retail Media value is reinvested back into members to improve pricing and drive the top line. Tech spend is capital-light overall, with good returns so far; AI-driven incremental sales offset AI costs, and front-end checkout tech is visibly improving SG&A through shorter lines, faster throughput, and lower labor. There is no capital pressure currently. **Q: You hold about $4–5 per share in cash. How are you thinking about capital allocation, including any special dividends and the use of tariff refunds?** A: Priorities are unchanged: 1) invest in growth (new clubs, capacity expansions at high-volume locations, distribution, manufacturing such as coffee roasting, and digital/member-experience tech); 2) raise the regular dividend over time; 3) repurchase shares to offset exec equity and avoid dilution. Beyond that, Costco continues to build excess cash. Given today’s valuation, special dividends remain the most efficient way to return excess cash while preserving growth flexibility, but matching the last yield requires more cash than before; timing and approach remain under Board review, with no specific plans yet. **Q: How big is the relocation/remodel opportunity and what thresholds trigger a move?** A: There is no single sales threshold. The decision is holistic, considering facility constraints at legacy small boxes (eg, ~500 parking spaces in some Northeast sites) and whether sales have reached the US Avg. for a warehouse, which signals potential that can be unlocked by moving to larger sites. Criteria vary by region and box size, with the core question being whether fuel capacity, parking, and in-club flow can support further growth. **Q: With AMZN and WMT accelerating delivery and the rise of Agentic Commerce, will Costco eventually build a first-party delivery network?** A: The topic is under ongoing review. The 2020 acquisition of big-and-bulky delivery materially improved delivery times for those items and has proven successful, a helpful precedent. For same-day, Costco partners with third parties with high satisfaction in place; US Avg. delivery is under 45 minutes with a 4.8/5.0 rating. The company is satisfied with current partners and will continue to assess whether further vertical integration is needed to shorten delivery times globally. **Q: Traffic looked soft early in Q3 and picked up in Apr. How much did fuel inflation help traffic, and can you structurally lift traffic with capacity constraints?** A: Over the past 12 months, there has been a natural rebalancing between traffic and ticket. About a year ago, traffic grew mid single digits with flat to slightly negative ticket; recently, traffic is ~+2% while ticket is up more, yielding similar comps overall, a normal internal shift and not something to over-interpret by month. Importantly, fuel traffic is not counted in Costco’s traffic metric, and fewer than half of fuel visits lead to an in-club shop. Q3 fuel-driven behavior did not meaningfully appear in total traffic, as many members fueled more frequently before tanks were empty rather than visiting the club more often; over time, however, fuel-attached members visit more, spend more, and renew more. Structural levers include longer fuel and club hours (added about a year ago), relocations/remodels to expand parking and fuel capacity, and front-end tech to speed checkout and increase parking turnover. Infill sites in mature markets also help; after new club openings, nearby clubs typically rebound as pressure eases. Throughput tech is key — faster checkout and faster parking turnover lift traffic at high-volume clubs. Strategic infill both relieves pressure and supports healthy traffic recovery at existing locations. **Q: Does AI search lift conversion more in specific categories?** A: It is broad-based and very early. As product pages are optimized for LLM relevance and exposure, Costco’s strong reviews and price competitiveness play well. When members use AI to search for specific items, Costco appears more consistently, and the company plans to secure at least its fair share of AI search traffic. Appliances are a good example, where prices include delivery, installation, and haul-away, and tires include installation, roadside assistance, and nitrogen — value that traditional search struggles to convey but LLMs can capture. **Q: Fuel volumes surged. How will you increase fuel throughput, and will high fuel prices permanently change behavior?** A: Fuel price moves are hard to predict, but members deeply engaged with Costco fuel visit more, spend more, and renew more, making fuel a long-term loyalty and growth driver. In high-price periods, members will drive farther or wait longer to save; when prices ease, relative attractiveness shifts. The goal is habit formation around fueling at Costco, which has historically supported long-term business health. **Q: Where is overall inflation running now, and how is it by category?** A: Overall inflation (incl. gas) ticked from low-to-mid single digits, mainly on fuel. By category: fresh and food & sundries are in deflation on produce, eggs, and dairy, while beef, prepared foods, and candy are inflating; non-food is slightly up, with memory costs impacting large electronics like PCs. If oil remains elevated, goods with resin, polyester, or cotton face further cost risk; the company has pre-bought some categories to blunt the impact. **Q: Has penny profit on fuel been pressured by wider price gaps?** A: Absolute fuel profit rose modestly YoY, but with fuel prices and sales up sharply, profit margin as a percent of sales declined significantly. **Q: What does the 3-year pipeline look like in Europe and Asia, and how is capacity evolving in Canada’s high-AUV market?** A: Canada has a clear plan for the next 3–5 years and should grow strongly and steadily for at least five years, after which plans will be reassessed. Asia offers the largest opportunities in China, Korea, and Japan, with limited remaining room in Taiwan. In Europe, France is still early with substantial potential, Spain has a clear 3-year outlook, and the UK has posted very strong results over the past three years with momentum expected to continue. Overall, Intl expansion outside North America is significant over the next 5–10 years, led by these markets. **Q: What is driving Executive growth — Gold Star upgrades or new members starting at Executive? Did higher fuel prices boost spring member acquisition?** A: Both. Upgrades from Gold Star and a higher share of new members choosing Executive at sign-up contributed, helped by added benefits such as extended hours and Instacart $10 monthly credits after qualifying spend. Fuel’s impact on new member adds is hard to isolate, but overall new sign-ups are growing YoY, which is encouraging, while lapping a tough base from last year. **Q: How is China’s Executive plan tracking vs. expectations, and is there room to expand to other Intl markets?** A: China’s Executive rollout is ahead of plan, with engagement above initial expectations. Markets with sufficient scale (roughly China’s current size as a threshold) are largely covered by Executive today. Smaller countries without Executive will likely adopt it as scale builds. The current footprint already covers the most meaningful markets. **Risk Disclosure and Disclaimer:**[**Dolphin Research Disclaimer and General Disclosure**](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [GOOG.US](https://longbridge.com/en/quote/GOOG.US.md) - [GOOGL.US](https://longbridge.com/en/quote/GOOGL.US.md) - [COST.US](https://longbridge.com/en/quote/COST.US.md)