Can Costco Absorb Rising Costs On A 3.9% Margin?

Costco Wholesale (COST) sells a huge volume of goods. It keeps only a thin slice of each sale as profit. The prices Costco pays for consumer electronics and oil-based goods such as motor oil are now rising. Management has said it is difficult to predict where inflation goes from here. The loose end in your Costco thesis is how much of that cost rise the company can absorb before its profit shrinks.

Costco Has A Thin Margin To Absorb Higher Costs

In fiscal 2026, which ended August 30, 2026, Costco kept only 3.9% of its revenue as operating profit. For the S&P 500 as a whole, that figure is 18.6%. Operating profit is what is left after paying for the goods, the staff, and the warehouses.

Take a made-up store with $100 of sales and $4 of operating profit. If its costs rise by $1 and its prices stay put, its profit falls by a quarter.

Costco’s costs are already moving. In the fourth quarter of fiscal 2026, Costco booked a $152 million LIFO charge, against $43 million a year earlier. A LIFO charge is an accounting cost that grows when the prices Costco pays for its inventory rise. Management tied the charge to higher memory costs in consumer electronics. It also pointed to inflation in gas, motor oil, and resins.

Analysts asked about rising prices on the fiscal fourth-quarter 2026 call, held on September 24, 2026. Supplier price increases and grocery inflation both came up.

The 3.9% of revenue Costco keeps as operating profit is called its operating margin. It has widened over the past three years, so there is more of it to lose.

How Far Has Costco’s Margin Widened?

Costco’s operating margin has widened from 3.3% in fiscal 2023 to 3.9% in fiscal 2026, its highest level in at least seven years. It was 3.6% in fiscal 2024 and 3.8% in fiscal 2025. In fiscal 2026, Costco earned $11.7 billion of operating profit on $303.2 billion of revenue.

At the September 30, 2026 close, investors paid about 44 times Costco’s fiscal 2026 earnings per share, against 21.7 for the S&P 500. That multiple, the price-to-earnings ratio, is the share price divided by a year of earnings per share. At that multiple, the share price appears to assume Costco’s margin holds up.

Has Costco Shown It Can Absorb The Costs?

Partly, in its latest quarter. Costco’s gross margin was 11.02% in the fourth quarter of fiscal 2026. That was down from 11.13% in the same quarter a year earlier. Gross margin is the share of sales left after paying for the goods sold. Management said that, excluding gas inflation, the rate was 20 basis points higher than a year earlier. That gain included a net benefit of 9 basis points from tariff refunds. A basis point is one hundredth of a percentage point. Excluding both gas and the refunds, the rate was about 11 basis points higher than a year earlier.

Management said core margins on their own sales, excluding tariff refunds and the price cuts funded by them, rose 18 basis points, with every category higher and supply chain efficiencies helping across all of them. Management has also said Costco sees supplier price increases 30 to 90 days or more ahead. The company uses its Kirkland Signature brand to fight back on prices. None of this is a forecast for Costco’s margin in fiscal 2027.

You will see the answer in Costco’s first-quarter fiscal 2027 results. Management has said Costco has already received about as much in tariff refunds this quarter as it did in the fourth quarter. So watch the gross margin rate excluding both gas inflation and tariff refunds. If that rate is again above the year-earlier level, Costco is absorbing the rising costs outside gas. If that rate falls below the year-earlier level, rising costs outside gas have started to reach Costco’s profit.

Beyond COST: A Systematic Way To Grow Your Money

Before you decide on COST, consider a better choice. Since its inception, the Trefis High Quality (HQ) Portfolio has returned 105%, beating the benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. And it did so without taking the concentrated risk that comes with do-it-yourself stock picking.