Costco Wholesale Corporation (NASDAQ:COST) increased membership income in fiscal 2026, but rewarding loyal shoppers carries a cost elsewhere in its accounts. Results released September 24 showed membership-fee revenue of $5.907 billion, up from $5.323 billion. That $584 million increase, or approximately 11%, strengthens recurring revenue.
For Costco Wholesale Corporation, Executive rewards reduce reported merchandise sales. The investor question is whether additional fees and spending outweigh the benefits offered to retain customers.
Costco Wholesale Corporation recognizes membership fees over the one-year membership period. Its Executive program generally offers a 2% reward on qualifying purchases, subject to an annual limit. Rewards reduce sales after allowing for estimated nonredemptions. That reduction totaled $3.007 billion in fiscal 2025.
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Bull Case: Rewards Support a Valuable Customer Base
Costco Wholesale Corporation ended fiscal 2026 with 84.1 million paid memberships, up 3.8%, including 42.3 million Executive memberships. Executive members accounted for 75.6% of fourth-quarter sales. Renewal rates were 92.3% in the United States and Canada and 89.8% worldwide.
Rewards can encourage frequent shoppers to consolidate purchases and renew. The investment case rests on repeat spending and retention, making each customer relationship more valuable.
Costco Wholesale Corporation also delivered broader earnings growth. Annual net sales rose 10.1% to $297.2 billion, while operating income increased approximately 12.5% to $11.685 billion. These results already reflect rewards recorded against sales. Fourth-quarter earnings also benefited by $0.15 per diluted share from International Emergency Economic Powers Act tariff refunds, after partial reinvestment in member value.
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Bear Case: Fee Growth Does Not Measure Membership Profit
Costco Wholesale Corporation reported accrued member rewards of $3.037 billion at fiscal year-end, compared with $2.677 billion a year earlier. That liability measures outstanding rewards obligations, not the annual reduction in sales. Its $360 million increase therefore cannot simply be deducted from the $584 million increase in membership revenue.
The results release does not disclose the fiscal 2026 rewards reduction. Without that figure, investors cannot compare incremental fee revenue with incremental reward costs. Membership fees also are not a separately reported profit stream, and subtracting rewards again from reported operating income would double-count their impact.
Costco Wholesale Corporation faced some merchandise-margin pressure. Calculated from reported net sales and merchandise costs, annual gross margin edged down to approximately 11.09% from 11.12%. That margin reflects rewards alongside product mix, pricing, and merchandise costs, making it a useful check on the overall economics.
Hedge Fund Sentiment
The filings available so far reflect positions held before Costco Wholesale Corporation reported its fiscal 2026 results. Insider Monkey’s database showed 104 hedge funds holding Costco Wholesale Corporation at the end of 2Q2026, down from 107 funds three months earlier.
Conclusion
Costco Wholesale Corporation is growing fees and total operating profit, supporting the case that member benefits can coexist with improving shareholder economics. The precise incremental giveback remains unresolved. Annual reward costs, renewal trends, and merchandise margins together will show whether loyalty is becoming more valuable or more expensive to maintain.
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This article is originally published at Insider Monkey.
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