COST: Q2 Earnings Beat Lifts Costco Past $998

Costco trades at a trailing PE of 55.5x based on the most recent quarterly results, with a [price-to-book ratio](/posts/2026-02-21/deep-dive-how-to-value-a-stock-pe-evebitda-dcf-and-the-metrics-that-actually-matter) of 14.1x and an enterprise value-to-EBITDA multiple of 130.2x. These are among the richest multiples in the consumer staples sector.

The valuation reflects Costco's extraordinary consistency. The company has grown revenue every single year for over a decade, with membership renewal rates above 90% providing a predictable recurring revenue stream. The price-to-sales ratio of 6.5x is high for a retailer with 2.9% net margins, but investors are paying for the durability and predictability of those margins.

The earnings yield of 0.45% is well below risk-free rates, indicating that investors are treating Costco more like a bond proxy than a growth stock. The dividend yield of 0.13% is modest, though the company occasionally returns capital through special dividends — it paid a $15/share special dividend in January 2024.

Fiscal Q2 2026 revenue of $69.60 billion grew 3.4% from Q1's $67.31 billion, with comparable sales growth remaining solid. Gross profit reached $8.88 billion, representing a 12.76% gross margin — essentially flat with Q1's 13.07% but reflecting seasonal mix effects rather than structural deterioration.

Operating income of $2.61 billion translated to a 3.74% operating margin, while net income of $2.04 billion represented a 2.92% net margin. CFO Gary Millerchip highlighted continued momentum in digitally enabled transactions during the earnings call, signaling that Costco's e-commerce investments are gaining traction.

SG&A expenses of $6.27 billion (9.01% of revenue) decreased slightly as a percentage of sales compared to Q1's $6.33 billion (9.41%), demonstrating operating leverage as the holiday quarter drove higher throughput per warehouse.

The interest coverage ratio of 79.0x underscores Costco's fortress balance sheet — the company carries minimal debt relative to its earnings power, a rarity among large retailers.

Costco's balance sheet is remarkably clean for a $443 billion company. Total debt stands at just $2.51 billion against shareholders' equity of $32.09 billion, yielding a debt-to-equity ratio of 0.08x — essentially debt-free in practical terms.

Cash and equivalents of $18.23 billion provide an enormous liquidity cushion, with the current ratio of 1.06x reflecting the business's naturally tight working capital cycle. Costco's negative [cash conversion cycle](/posts/2026-03-01/deep-dive-cash-conversion-cycle-explained-how-to-measure-a-companys-cash-efficiency-and-why-it-separates-winners-from-losers) of just 2.4 days means the company collects from customers before paying suppliers — a structural advantage that generates float.

Operating cash flow for Q2 was $2.99 billion, with capital expenditure of $1.29 billion (capex-to-revenue of 1.85%) resulting in [free cash flow](/posts/2026-02-21/deep-dive-free-cash-flow-explained-why-it-matters-more-than-earnings) of $1.71 billion. The FCF profile is lumpy quarter-to-quarter due to working capital swings, but on a trailing twelve-month basis, Costco generates robust cash flows.

For full-year FY2025, the company produced $13.34 billion in operating cash flow and $7.84 billion in free cash flow, comfortably funding its aggressive warehouse expansion program while maintaining dividend payments and opportunistic buybacks.

Costco's competitive moat is built on three pillars: membership loyalty, purchasing power, and warehouse economics. With renewal rates consistently above 90% and a growing global warehouse footprint, the model is self-reinforcing — more members drive more purchasing volume, which drives better supplier terms, which drives more member value.

The company continues to expand internationally, with particular momentum in China where warehouse clubs are reshaping consumer behavior. A [recent Barron's report](https://www.barrons.com/articles/costco-sams-club-china-consumer-warehouse-shopping-6b5b57df) highlighted how Costco and Sam's Club are sparking a fundamental shift in Chinese retail toward the warehouse shopping format.

Management addressed tariff uncertainty during the Q2 earnings call, noting that Costco's massive purchasing scale gives it the ability to absorb or pass through tariff impacts more effectively than smaller retailers. This pricing power advantage becomes particularly relevant in the current trade policy environment.

Costco's Kirkland Signature private label brand, which generates an estimated 25-30% of total revenue, provides an additional margin buffer. Private label products carry higher margins and insulate the company from branded product price fluctuations.

The stock's 1.6% post-earnings jump suggests that [defensive investors are rotating into Costco](https://www.investopedia.com/why-some-experts-think-defensive-investors-could-lift-costco-stock-back-toward-records-cost-11920818) as a safe haven, which could provide additional upward price support in volatile markets.

Analyst estimates project Costco's FY2029 annual revenue reaching approximately $366 billion, implying a mid-to-high single-digit [compound annual growth rate](/posts/2026-02-23/deep-dive-what-is-cagr-compound-annual-growth-rate-how-to-calculate-it-and-why-every-investor-should-know-it) from current levels. Quarterly EPS estimates for FY2029 range from $5.93 to $8.34, suggesting continued steady earnings growth.

The next earnings announcement is scheduled for May 28, 2026, covering fiscal Q3 which includes the spring selling season. Key metrics to watch include: (1) membership fee revenue and renewal rates, (2) comparable sales growth excluding fuel and foreign exchange, (3) e-commerce penetration trends, and (4) any updated guidance on tariff impacts.

Catalysts for upside include: potential membership fee increases (Costco raised fees in September 2024 and historically does so every 5-6 years), continued international expansion particularly in Asia, and further margin improvement from e-commerce and Kirkland Signature growth.

Risks include: the elevated valuation leaving limited room for multiple expansion, potential consumer spending slowdown if tariffs drive inflation higher, competition from Amazon and Walmart's Sam's Club, and the possibility that defensive rotation unwinds if market sentiment improves.

At 53.5x earnings, investors are paying a full price for Costco's quality. The stock is best suited for long-term holders who value consistency and sleep-at-night ownership over near-term upside potential.