The warehouse club's fourth-quarter EPS growth of 15% included 15 cents a share from IEEPA tariff refunds. Its own presentation shows the underlying rate, and a 92.3% renewal rate that held.
Costco shares spent the first part of Friday trading as if investors were unimpressed by its fiscal fourth quarter. Then they changed their minds.
The stock closed Thursday at $896.48 after the company reported results. It opened Friday at $886.62, down about 1.1%, and touched $883.10. By midafternoon it had climbed to near $921.56, up about 2.8% on the day and nearly 4% above its session low. Costco still trades about 16% below its 52-week high of $1,096.50.
The tariff refund
Costco earned $6.75 a share in the quarter, which included a benefit of 15 cents a share from refunds of tariffs collected under the International Emergency Economic Powers Act. The company's investor presentation spells out the effect. Reported net income grew 14.9% and earnings per share 15.0%. Excluding the refund, net income grew 12.3% and EPS 12.4%.
That is still double-digit growth for a company of Costco's size, but it is about 2.6 percentage points lower than the headline. The refunds are a one-time benefit, and Costco said it reinvested part of them.
Costco is not the only retailer reporting the effect. Lifetime Brands booked a $40.1 million tariff refund that flattered its profitability while underlying earnings were flat. As more companies report, separating refunds from operations will be a recurring task for investors.
The membership engine
The membership numbers, which drive most of Costco's profit, held up. The renewal rate in the U.S. and Canada was 92.3%, and 89.8% worldwide. Paid memberships rose 3.8% to 84.1 million, executive memberships reached 42.3 million, and executive members accounted for 75.6% of sales. Membership fee income rose 7.3%, or 7.7% excluding currency effects.
Margins were mixed. Gross margin was 11.02%, down 11 basis points from a year earlier, but up 20 basis points excluding gasoline. Selling and administrative expenses rose 27 basis points as a share of sales, but only 2 basis points excluding gasoline. Digitally enabled comparable sales rose 19.5%, and traffic to Costco's website and app rose 30%. The company plans to end fiscal 2027 with about 665 U.S. warehouses, up from 647.
The analysts
D.A. Davidson raised its price target to $1,040 from $1,000 on Friday while keeping a neutral rating. A higher target from a firm that still does not recommend buying the stock does not by itself explain a $25 move in a company worth more than $400 billion. The reversal lines up equally with investors digesting the underlying growth rate, with the renewal rate holding, or with a rebound in a stock that had been trading below its 50-day average.
The closing print will show whether the reversal holds. Beyond Friday, the first quarter of fiscal 2027 will be the first without the refund cushion in the comparison, which makes it the cleaner test of whether Costco's growth rate is closer to 12% or 15%.