While much of retail struggles with cautious consumers and margin pressure, Costco continues to operate in its own universe. The warehouse giant reported fiscal Q1 2026 results Thursday that beat estimates across the board—powered by a digital transformation that's finally gaining real traction.

The Numbers

Costco's first quarter (ending November 23, 2025) delivered:

  • Revenue: $67.31 billion vs. $67.14 billion expected
  • EPS: $4.50 vs. $4.27 expected
  • Comparable sales: Up 6.4% vs. 5.8% expected
  • E-commerce growth: 20.5% year-over-year
  • Membership fee income: Up 14% to $1.33 billion

Net income rose to $2 billion, up from $1.80 billion in the year-ago quarter. Same-store sales accelerated across geographies, with particular strength in the U.S. and Canada.

The E-Commerce Story

For years, Costco's digital business was an afterthought—a clunky website that seemed designed to drive members to physical warehouses rather than complete online purchases. That's changing rapidly.

Digital sales jumped 20.5% year-over-year, with website traffic up 24% and app traffic surging 48%. More impressively, average order value increased 13%—members aren't just browsing more, they're buying more per visit.

CFO Gary Millerchip attributed the gains to several initiatives:

  • Personalized product recommendations driving conversion
  • Improved product display pages
  • Enhanced search capabilities
  • Same-day delivery through Instacart, Uber, and DoorDash

The same-day delivery partnership is particularly noteworthy—it grew faster than overall digital sales. Costco members want convenience, and the company is finally delivering it.

The Membership Moat

Costco's true competitive advantage isn't its warehouses or its prices—it's the membership model. And that model has never been stronger.

Key membership metrics:

  • Total paid memberships: 81 million (up 6.3%)
  • Executive memberships: Up 9.3% (the higher-fee tier)
  • Renewal rate: Above 90%
  • Membership fee revenue: $1.33 billion (up 14%)

The 14% jump in membership fees reflects the September 2024 price increase—from $60 to $65 for basic membership and $120 to $130 for Executive. Despite the increases, renewal rates remained above 90%. That's pricing power.

Membership revenue flows almost directly to the bottom line with minimal associated costs. It's predictable, high-margin, and insulates Costco from the competitive pressures that hammer traditional retailers.

Expansion Continues

While some retailers are closing stores, Costco is opening them. The company plans to add 28 new warehouses in fiscal 2026, with 16 in the U.S. market. Q1 saw eight new locations, including expansion into France and additional Canadian business centers.

The company ended the quarter with 914 warehouses globally and expects to reach 942 by fiscal year-end. Each new warehouse represents incremental membership revenue and sales density that competitors can't easily replicate.

The Tariff Question

Costco acknowledged the elephant in the room: tariffs. About one-third of U.S. sales come from imported goods, making the company exposed to trade policy changes.

Management's response has been proactive:

  • Sourcing more products domestically where possible
  • Leveraging Kirkland Signature private label for supply chain control
  • Absorbing some cost increases rather than passing them to members

In grocery specifically, Costco saw higher inflation in beef, seafood, and coffee, but offsets from eggs, cheese, butter, and produce kept overall food inflation manageable.

Valuation: The Perpetual Debate

Costco stock trades at roughly 55x earnings—a premium that makes value investors uncomfortable. The bull case: this is a compounder with 90%+ renewal rates, expanding digital capabilities, and a membership model that generates predictable cash flow regardless of economic conditions.

The bear case: no company deserves 55x earnings, and any stumble—whether from competition, tariffs, or consumer weakness—could trigger a painful multiple compression.

So far, the bulls have been right. Costco has consistently delivered the growth that justifies its premium, and Thursday's results continued that pattern.

What to Watch

Key metrics for future quarters:

E-commerce growth sustainability: Can digital sales maintain 20%+ growth, or was this quarter an outlier?

Executive membership mix: Higher-fee memberships drive more profit per member. The 9.3% growth rate suggests affluent consumers remain engaged.

Tariff impact: As new tariffs take effect, watch for signs of price increases or margin compression.

New warehouse productivity: Are new locations ramping to profitability as quickly as historical averages?

The Bottom Line

Costco's Q1 results confirm what long-term shareholders already knew: this is one of the best-run retailers in the world. E-commerce finally showing real momentum adds a growth vector that was previously missing.

The valuation remains rich, but premium businesses often trade at premium multiples. For investors seeking retail exposure with minimal downside risk, Costco's combination of membership revenue stability, digital growth acceleration, and physical expansion creates a compelling package.

The warehouse giant just keeps grinding higher—defying both retail headwinds and valuation skeptics.