Costco Earnings: Digital Focus Gains Traction Amid Strong Results

Key Morningstar Metrics for Costco Wholesale

• Fair Value Estimate: $640.00
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Costco Wholesale’s Earnings

Costco Wholesale’s COST first-quarter results featured 8.2% net sales growth, 6.4% comparable sales, and diluted EPS of $4.50. Digitally enabled comparable sales rose 20.5%, while artificial-intelligence-enabled pharmacy initiatives helped drive a 20-basis-point improvement in gross margin (13.1%).

Why it matters: Costco is showing it can layer digital and AI capabilities onto its warehouse model. Rising productivity and value are evidenced by record $250 million Black Friday e-commerce sales and AI tools that pushed pharmacy in-stocks above 98% and drove mid-teens prescription growth.

• Strong 14% membership fee growth was partially offset by modest renewal softness among digitally acquired younger members. We expect renewals to improve as Costco builds out its data and tech platforms to deliver more targeted, personalized member communications.

The bottom line: We expect to lift our $640 fair value estimate for wide-moat Costco by a low-single-digit percentage due to the time value of money. We view shares as more than 35% overvalued, with the price implying compounded mid-teens EPS growth, which we see as unrealistic amid competition.

• Costco’s shares are down almost 3% year to date, materially underperforming the Morningstar Global Markets Index (up 22%). Down slightly in after-hours trading after results, investors signaled uncertainty over whether renewal rates can meaningfully advance from current levels.
• We plan to raise our capital spending as a share of sales in fiscal 2026 to 2.2% from 2.0% following management’s guidance for new warehouse openings, additional remodels in high-volume units, and expanded digital investments, which would partially offset the lift in our fair value estimate.

Coming up: Management expects digital sales to outpace consolidated sales growth over the long term as it rolls out more AI tools, ramps up its retail media offerings, and expands its omnichannel options to support store productivity.