Costco (COST) Q2 2026 earnings review
Digital Surge and Margin Expansion Drive Strong Double-Digit Profit Growth
Costco delivered an impressive Q2, with Net Income accelerating 13.8% to $2.04B, outpacing top-line Net Sales growth of 9.1%. Unlike prior quarters where wage hikes pressured the bottom line, Costco successfully leveraged SG&A while expanding core gross margins by 22 basis points. The standout story is the digital acceleration: e-commerce comps surged 22.6%, fueled by a massive 63% spike in app visits. While the financial results are pristine, underlying membership metrics show a slow but steady deceleration in renewal rates and new user acquisition that warrants monitoring.
🐂 Bull Case
Gross margin expanded 17 bps (11 bps ex-gas), with core-on-core margins up an impressive 22 bps. Crucially, SG&A expenses leveraged down 13 bps, proving Costco can absorb prior wage increases while expanding profitability.
Digitally-enabled comps grew 22.6%. With app visits up 63% and average order value jumping 15%, Costco is successfully transforming its physical 'treasure hunt' into a digital habit.
🐻 Bear Case
Despite record profits, U.S./Canada renewal rates continued their slow decline, dropping to 92.1% from 93.0% a year ago. Worldwide renewals slipped to 89.7%.
Total paid memberships grew 4.8% YoY, a notable deceleration from the 6.8% growth rate seen in the same quarter last year.
⚖️ Verdict: 🟢
Bullish. The combination of accelerating digital sales, massive app engagement, and expanding core margins completely overshadows the slight normalization in membership renewal rates. Costco is operating at peak efficiency.
Key Themes
Digital & App Engagement Surging
Accelerating. E-commerce is no longer an afterthought for Costco. Digitally-enabled comparable sales grew 22.6% (21.7% adjusted). The underlying metrics are staggering: Total App visits jumped 63%, and Ecommerce Site Traffic increased 32%. Average Order Value grew 15%, largely driven by high-ticket items like Gold/Jewelry and Small Electrics.
Core Margin Expansion Overcoming Costs
Accelerating. After several quarters of wage investments pressuring SG&A, Costco demonstrated excellent cost control in Q2. SG&A as a percentage of sales improved by 13 bps YoY (-8 bps ex-gas). Simultaneously, core-on-core gross margins improved by 22 bps, showcasing significant operating leverage as sales volumes increase.
The Slow Bleed in Renewal Rates
Decelerating. A specific data point contradicts the narrative of an impenetrable membership moat: US/Canada renewal rates fell to 92.1%. While still objectively high, this represents a steady, sequential decline from 93.0% in Q2 FY25. Management previously attributed this to an influx of younger, digital-first members who renew at lower rates, but the trend has yet to stabilize.
Membership Acquisition is Slowing
Decelerating. Paid memberships reached 82.1 million, but the YoY growth rate has slowed to 4.8%. This is a material drop from the 6.8% growth achieved in Q2 of the prior year. The fee increase implemented earlier in the fiscal year is driving income (+13.6%), but actual body-count growth is cooling off.
Macro: Lunar New Year Masks Underlying Softness
Stable. February sales appeared exceptionally strong, but management noted that the shift in the Lunar New Year added approximately 4.0% to Other International sales and 0.5% to Total Company sales. Excluding this calendar quirk, international momentum is slightly softer than the headline figures suggest.
Personalization Tech Upgrades
Costco historically relied on uniform, in-store physical discovery. In Q2, the company deployed modernized product display pages, expanded carousels for personalized shopping, and introduced personalized marketing based on browsing history. This technological shift is directly responsible for the 15% increase in Ecommerce Average Order Value.
Other KPIs
Accelerating. Up 13.6% YoY (12.2% ex-FX). This reflects the recent membership fee increase working its way through the renewal cycle. Executive Memberships now total 40.4 million, making up 75.8% of total sales penetration.
Stable. Comparable traffic grew a healthy 3.1% globally (2.4% in the US). Ticket growth was higher at 4.2% (adjusted 3.5%), heavily influenced by larger basket sizes online and inflation in specific categories. US adjusted ticket grew 3.9%.
Guidance
Stable. Costco plans to open 18 additional warehouses in the remainder of the fiscal year (15 in the US, 1 in Canada, 2 International). This will bring the total from 924 at the end of Q2 to 942, consistent with their historical run-rate of low-to-mid single-digit square footage growth.
Key Questions
Digital Margin Mix
E-commerce comps are surging at 22.6%, led by Gold and Jewelry. Because bullion typically carries extremely low margins, how is this rapid digital growth impacting the overall blended gross margin of the digital segment?
Renewal Rate Floor
U.S./Canada renewal rates have ticked down sequentially for over a year, reaching 92.1%. What is the internal projection for when this metric bottoms out as the influx of younger, digital-first members normalizes?
Personalization ROI
With app visits up an incredible 63% following the rollout of personalized browsing carousels, what is the roadmap to monetize this traffic through Retail Media networks or sponsored placements?