Costco FY2026: $303B Revenue, 11% Gross Margin, and the Membership Fee Profit Engine

Costco closed its fiscal 2026 on August 30 with a milestone: total revenue crossed $300 billion for the first time. The annual 10-K gives us a chance to dig into the income statement and see where that growth actually came from — and why a company that earns a razor-thin margin on merchandise keeps compounding profits at a double-digit clip.

The headline figures: total revenue of $303.2 billion, up 10.1%, operating income of $11.7 billion (+12.5%), and net income of $9.23 billion, or $20.76 per diluted share, up 13.9% from $18.21 last year.

The membership engine

The flow diagram makes Costco's business model unusually legible. Of $303.2 billion in revenue, $297.2 billion is merchandise sales — and $264.3 billion of that goes straight back out as merchandise costs. What's left over on goods is $33.0 billion, an 11.09% merchandise gross margin, essentially flat versus 11.12% last year (management notes it would have risen 10 basis points excluding gasoline price inflation, which inflates the sales denominator).

Then there's the other revenue line: membership fees of $5.9 billion, up 11%, which carry essentially no direct cost. That 1.9% sliver of revenue represents about 51% of Costco's $11.7 billion operating income. Paid members grew to 84.1 million from 81.0 million, and total cardholders reached 150.4 million. Average fee revenue per paid member climbed from roughly $65.70 to $70.20, reflecting last year's fee increase, Executive membership upgrades (the higher-priced tier that earns 2% cash back), and new sign-ups. Note also the $3.0 billion of deferred membership fees on the balance sheet — cash collected but not yet recognized, a nice working-capital feature.

Operating leverage, finally

The quietly impressive line is SG&A: $27.2 billion, or 9.15% of net sales, down from 9.25%. Expenses grew 8.9% while sales grew 10.1%. Gasoline inflation flatters that ratio too (excluding it, SG&A ratio ticked up 1 bp), but the result is real: operating income grew faster than revenue.

Below the operating line, Costco is now meaningfully a beneficiary of its own cash pile. Interest income rose to $601 million from $469 million, against just $145 million of interest expense, as cash and equivalents swelled to $20.2 billion versus $6.2 billion of total debt. The effective tax rate dipped to 24.7% from 25.1%, helped by $134 million in research and development credits.

A few other details worth flagging:

• Ancillary businesses are the growth story. Warehouse ancillary and other businesses (gasoline, pharmacy, food court, optical, travel, e-commerce) grew 20% to $61.4 billion, versus 8% growth in core merchandise. Gas price inflation contributed $3.5 billion; pharmacy and travel also outpaced the company. Digitally-enabled comparable sales rose 21%.
• Geography matters. The U.S. generated 72.5% of revenue but a 3.5% operating margin. Canada did 5.2% and Other International 4.5% — so Canada's $40.6 billion of revenue (13.4% of the total) delivered 18% of operating income.
• Capital returns stayed modest. Costco repurchased just $847 million of stock (891,000 shares at an average $950.90) and paid $2.46 billion in dividends after a 13% quarterly dividend hike in April. Only $1.1 billion remains under an authorization expiring in January 2027 — watch for a new one.

What it means

Operating cash flow of $15.8 billion funded $6.4 billion of capital spending across a 939-warehouse fleet, with average sales per warehouse hitting $292 million versus $272 million a year ago. The risks are familiar but not trivial: heavy dependence on U.S. and Canadian operations, foreign-currency swings (which added $1.3 billion to sales this year and could reverse), and tariffs — Q4 included a one-time $0.15-per-share benefit from IEEPA tariff refunds, partly reinvested in member pricing.

Against Walmart's Sam's Club and BJ's Wholesale, Costco's edge remains the same arithmetic: sell goods at near cost, keep expenses lean, and let renewal-driven membership fees do the profit work. As long as the member count keeps climbing, the model keeps paying.