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Call sheet · Q1'26

Costco Wholesale (COST)

Q1'26 earnings call · held December 11, 2025 · compared with the Q4'25 call · management-credibility review
11/12
Disclosure score
4 medium, 4 low flags
Financial quality
Bottom line
The sleeper story is AI becoming a material margin driver - pharmacy AI hit 98% in-stocks while driving mid-teen script growth and margin expansion, now rolling to gas operations. Everyone's fixated on the 10bp renewal rate decline, but they actually beat expectations due to better digital engagement. The binding constraint isn't demand or competition, it's warehouse capacity and health care cost inflation. Ron's most revealing quote: 'AI has a great asset to that and it really can help us become a much better merchant out there.' My view changes if health care costs don't stabilize or if the AI margin benefits don't scale beyond pharmacy.

The 30-second version

  • AI is quietly becoming the margin expansion engine while everyone fixates on traffic
  • Membership renewal rate decline mysteriously slowed despite mathematical headwinds
  • Core margin expansion accelerating but they're hiding it in gas deflation noise

What changed this quarter

MetricQ4'25Q1'26Change
Net Sales$84.43B (+8.0% YoY)$65.98B (+8.2% YoY)Acceleration despite shorter quarter
Comparable Sales (ex-gas/FX)6.4%7.1%+70 bps acceleration
Digital Comps13.5% (adjusted FX)20.5%+700 bps acceleration
Membership Fee Income$1.72B (+14% YoY)$1.329B (+14% YoY)Sustained double-digit growth
Total Paid Members81M (+6.3% YoY)81.4M (+5.2% YoY)-110 bps deceleration
Executive Members38.7M (+9.3% YoY)39.7M (+9.1% YoY)Sustained 9%+ growth
Renewal Rate Worldwide89.8%89.7%Only -10 bps vs expected larger decline
Gross Margin Rate11.13% (+13 bps YoY)11.32% (+4 bps YoY)Deceleration but core-on-core up 30bps
Core-on-Core Margins+29 bps YoY+30 bps YoYSustained expansion acceleration
SG&A Rate9.21% (+17 bps YoY)9.6% (+1 bp YoY)Massive improvement, near leverage

Accountability tracked

7 new promises made4 narrative shifts flagged6 prior promises scored
Inside the full report
The complete write-up covers the full promise ledger with kept/missed calls, disclosure-quality scoring, the metrics-vanished check, verification items, and the questions to ask next quarter.
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Scores, kept-promise rates, and flags on this site reflect the author's opinion, applying a stated methodology to statements management made on public earnings calls. Informational and educational purposes only - not investment advice, a recommendation, or an offer to buy or sell any security. Sources believed reliable but not guaranteed; the author may hold positions in the securities discussed.

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