Goldman Sachs Maintains Buy on Costco: F3Q Sales Beat Expectations, Raises Target Price to $1,159

Overview

This report analyzes Costco Wholesale’s (COST.US) F3Q FY26 performance. Goldman Sachs notes that while EPS slightly missed internal expectations, core same-store sales significantly exceeded market expectations, with healthy membership base and renewal rate growth. Based on revised revenue and profit forecasts, the firm maintains a 'Buy' rating and raises the 12-month target price from $1,088 to $1,159, implying ~16.5% upside. The report emphasizes Costco’s continued investment in member value amid high oil prices and clear long-term store expansion plans, supporting its mid-term growth thesis.

Core views

Demand Side: Same-store sales show resilience with structural highlights. F3Q same-store sales growth excluding gas and currency effects was 6.6%, slightly down sequentially but in line with Goldman Sachs’ expectations and above the market consensus of 6.2%. Growth was driven by both traffic (+2.4%) and ticket size (+7.3%). Categories such as fresh food, non-food, and groceries saw mid-to-high single-digit growth, with Kirkland Signature’s 15-20% price advantage over national brands continuing to attract customers. Ancillary businesses were the biggest surprise, with same-store sales surging mid-20%, driven by pharmacy (increased GLP-1 drug demand, expanded insurance coverage) and gas sales—the last five weeks of F3Q saw record weekly gas sales. User Stickiness: Membership metrics validate the business moat. Total membership reached 82.9 million (+4.1% YoY), with premium members up to 41.2 million (+9.6% YoY). U.S. and Canada renewal rates improved to 92.2% (+10bps QoQ), with global renewal at 89.7%. Despite typically lower renewal rates for online members, management offset this with digital engagement strategies. Amid high inflation and oil prices, Costco increased subsidies for essentials like eggs and meat and introduced tariff refund programs, reinforcing loyalty through 'counter-cyclical investment.' Supply Side: Clear store expansion pace with long-term potential. F3Q saw four net new stores (three in the U.S., one in Canada). For the remainder of FY26, the company expects 26 net new stores (previously 28), with two postponed to FY27. Management reiterated the mid-to-long-term target of 30+ net new stores annually across domestic and international markets. Canada is expected to remain strong; Asia offers opportunities in China, Korea, Japan, and Taiwan; and Europe shows vitality in France, Spain, and the UK. Additionally, Costco is relocating high-traffic warehouses to larger sites to improve parking and gas station access, unlocking growth potential for existing stores.

Analysis framework

Goldman Sachs’ framework follows a 'short-term performance validation → mid-term earnings revision → long-term valuation anchoring' logic. First, by decomposing same-store sales (SSS) into traffic and ticket size factors and segment performance, it assesses structural shifts in consumer trends (e.g., pharmacy growth, gas sales). Next, combining membership fee income and operating leverage, it evaluates margin sustainability and adjusts future EPS and revenue models. Finally, relative PE valuation is used, referencing historical multiples and market conditions to set target prices under bear/base/bull scenarios. The core of this methodology lies in relying not just on macro consumption data but also on high-frequency membership behavior and per-store efficiency to cross-validate intrinsic growth quality.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative P/E Valuation Framework

  The report uses market-relative PE multiples (not absolute PE) to determine target price ranges. For example, the base scenario assigns a 210% market-relative PE multiple. This dynamically reflects stock premiums/discounts relative to the broader market, avoiding distorted absolute price targets amid market-wide valuation fluctuations.

• Industry/Industrial Analysis FrameworkVolume-Price Breakdown

  Same-Store Sales (SSS) Volume-Price Attribution

  Decomposes SSS growth into 'traffic' and 'ticket size' factors. In this report, +6.6% SSS is split into +2.4% traffic and +7.3% ticket, helping investors discern whether growth stems from more shoppers or higher spending per visit, assessing growth health and sustainability.

• Competition & Strategy FrameworkMoat / competitive advantage

  Membership Retail Switching Costs & Network Effects

  The report focuses on renewal rates as a core moat metric. High renewal rates imply high user switching costs and strong brand stickiness—key differentiators for warehouse clubs vs. conventional supermarkets. Even with short-term margin pressure, stable renewal rates ensure long-term cash flow certainty.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Costco Wholesale (COST.US)

  Direct Beneficiary: F3Q SSS beat, steady membership growth, earnings forecast raised, target price increased

  Strengths

  High renewal rates (92.2%), Kirkland’s price advantage, new growth drivers like pharmacy and gas, clear long-term expansion path

  Weaknesses

  Gross margin slightly below expectations (11.0% vs. 11.3%), EBIT margin down 9bps YoY, FY26 store openings slightly reduced to 26

  Comparison

  Vs. traditional supermarkets, Costco shows stronger traffic resilience and ticket growth amid inflation; vs. pure e-commerce, its offline experience and instant gratification create differentiation.

  Risks

  Intensifying competition from grocers, convenience stores, hypermarkets, and e-commerce; commodity, FX, and tariff headwinds; softening demand; supply chain and freight issues

Key data

• F3Q EPS$4.93Below Goldman Sachs’ $4.99 estimate but in line with market consensus
• F3Q SSS (ex. Gas)+6.6%In line with Goldman Sachs’ estimate, above market consensus of +6.2%
• Total Membership82.9 million+4.1% YoY
• U.S./Canada Renewal Rate92.2%+10bps QoQ
• FY26 Revenue Growth Forecast+10.3%Significantly raised from +8.5%
• FY26 EPS Forecast$20.63Raised from $20.42
• 12-Month Target Price$1,159Raised from $1,088, implying 16.5% upside

Impact & implications

For Costco, F3Q performance confirms its pricing power and membership appeal in a complex macro environment, with pharmacy and gas businesses emerging as new growth drivers. The raised FY26-FY28 earnings forecasts reflect institutional confidence in its 'value-for-volume, member-centric' strategy. For the market, Costco’s performance may set a benchmark for defensive consumer assets, demonstrating that warehouse clubs can achieve volume-price growth even as consumers cut discretionary spending. Key variables to watch include tariff refund progress and new store efficiency, which will validate the long-term 30+ stores/year target.

Risks

• Intensifying competition from grocers, convenience stores, hypermarkets, other warehouse clubs, or e-commerce platforms
• Headwinds from commodity prices, FX volatility, or tariffs
• Weakening consumer demand environment
• Macroeconomic headwinds
• Supply chain issues (including rising freight costs)

What to watch

• Tariff refund approval progress and member reward specifics
• FY26 remaining quarters and FY27 new store openings and productivity
• Pharmacy growth momentum for GLP-1 drugs and related services
• Online membership renewal rate improvements and digital retention strategies