Costco's Membership Fee Boost Is About to Run Out

Costco Wholesale (NASDAQ:COST) reports its fiscal 2026 fourth-quarter results after the market closes on Thursday, Sept. 24. There's no suspense on the top line -- Costco discloses its sales every month, so investors have known since early September that fiscal fourth-quarter net sales were $93.9 billion, up 11.3% year over year.

What the monthly releases never show is what Costco kept. Gross margin, membership fee income, and earnings all stay hidden until the full report lands. And one of those lines has reached a turning point. The higher U.S. and Canada membership fees that took effect in September 2024 have nearly finished working through Costco's results, so Thursday's report could be the last one that gets much of a boost from them. That's a big deal for a line that made up about half of Costco's operating income in fiscal 2025.

And the stock still isn't cheap. At about $899 as of this writing (down from a 52-week high of $1,096.50), shares sell for about 45 times earnings. A price like that rests on the profit lines, not the sales line.

Here's a closer look at the three numbers worth watching Thursday.

1. Membership fee income is losing its tailwind

Costco's membership fees are small next to its sales but huge next to its profits. In fiscal 2025, membership fee income came to $5.3 billion -- about half of the $10.4 billion the company earned in operating income.

The line has been growing fast, but less fast every quarter. In last year's fiscal fourth quarter, membership fee income rose 14% year over year. It grew nearly 14% through the first half of fiscal 2026, then slowed to 10.7% growth in the fiscal third quarter (the 12 weeks ended May 10), when it came in at $1.37 billion. Chief financial officer Gary Millerchip said on the fiscal third-quarter earnings call that a little more than a quarter of that growth came from the higher U.S. and Canada membership fees that took effect in September 2024.

Costco collects fees up front and recognizes them over each member's one-year term. That means the 2024 increase has been phasing in gradually -- and by now, it's nearly done. So Thursday's figure could be the last quarterly comparison that gets much help from it.

I think the direction matters more than the level here. Watch whether growth lands closer to the third quarter's 10.7% than to last year's 14%.

One recent development won't show up at all: Costco's nationwide launch on DoorDash came Sept. 17, after the quarter ended. Any membership boost from it belongs to fiscal 2027.

2. Gross margin has the widest range of outcomes

Costco's gross margin was 11.04% of net sales in the fiscal third quarter, down from 11.25% a year earlier. Strip out the effect of gas prices and the rate was essentially flat. Management also said margins slipped slightly in fresh foods and its food and sundries business, where it invested in lower prices on everyday items like eggs and beef.

Of course, some of the swing factors are out of management's hands, starting with gas prices. Tariffs are a factor, too. Costco has said in court filings that it has received about a third of the tariff refunds it's owed and has begun returning that value to members through lower prices. Both could swing the fourth-quarter rate in either direction.

A year ago, the fiscal fourth quarter's gross margin was about 11.1%, and small moves around that mark are big money. On $93.9 billion of sales, every tenth of a percentage point of gross margin is worth about $94 million in pre-tax profit.

3. The $5.87 benchmark

Costco's net income in last year's fiscal fourth quarter was $2.6 billion, or $5.87 in earnings per share, up 11% year over year. That's the bar this report has to clear.

It should be beatable. Through the first three quarters of fiscal 2026, Costco's earnings per share rose 13.5% year over year while net sales grew 9.6%. In other words, profit has been outgrowing revenue all year.

And we already know fourth-quarter sales rose 11.3%. If earnings growth comes in below that figure, it would mean margins moved the wrong way during the quarter.

Buy before Thursday?

Costco remains one of the best-run retailers anywhere. Fourth-quarter comparable sales rose 9.4%, with U.S. comparable sales up 10.7% -- impressive growth for a retailer this large.

But at about 45 times earnings, the stock is still priced as if all of Thursday's unknowns break the right way. Profits growing in the low teens is excellent for a retailer. But it's arguably not fast enough to support a valuation this rich for years to come.

Is Costco stock a buy ahead of the report? I don't think so. Ultimately, this is a company I'd love to buy -- but only at the right price.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and DoorDash. The Motley Fool has a disclosure policy.