Costco Beats Revenue Estimates as Record Gas Volumes Drive Member Traffic. AI Could Power the Next Leg Higher for COST Stock.

Costco Wholesale (COST) just posted fiscal third-quarter results that surpassed Wall Street's revenue expectations, but the story beneath the numbers is even more compelling. Record fuel volumes pulled in first-time gas customers, pharmacy sales surged on GLP-1 drug demand, and digital traffic rose 37%. With membership renewal rates stabilizing and tariff refunds on the way back to members, the long-term thesis for COST stock remains firmly intact.

What should investors expect from Costco going forward? Let's take a closer look.

Costco Posted Solid Q3 Numbers

According to the recent earnings report, Costco reported Q3 net sales of $69.15 billion, up 11.6% from the same period last year. Total revenue, including membership fees, came in at $70.5 billion, beating the Wall Street consensus estimate of $69.81 billion. Meanwhile, EPS landed in line with expectations at $4.93, with net income for the period at $2.19 billion. That was up from $1.9 billion, or $4.28 per share, in the prior-year quarter.

Adjusted comparable sales, stripping out gas price inflation and foreign exchange swings, grew 6.6% for the quarter. That's a steady, healthy number that shows Costco's core business is growing consistently, even before you factor in the fuel tailwind.

Membership fee income grew 10.7% year-over-year (YOY) to $1.37 billion. The company ended the quarter with 82.9 million total paid members, up 4.1% YOY. More specifically, Executive Memberships — Costco's higher-tier option that tends to produce members who spend more and visit more often — grew 9.6% to 41.2 million.

The Gas Business Is a Key Driver for Costco

Costco saw record-breaking fuel volumes during fiscal Q3 as conflict in the Middle East continued to drive oil prices higher and consumers hunted for relief at the pump. CEO Ron Vachris told analysts that the final five weeks of the quarter were the company's top five volume weeks in company history. Every one of the quarter's three four-week fiscal periods “set successive all-time company volume sales records.” 

Costco attracted first-time gas customers during the period — people who had been members but had never used the fuel stations before. Notably, members who fill up at Costco typically spend more inside the warehouse and renew their memberships at higher rates. In short, cheap gas is a key traffic driver and a loyalty engine.

Vachris added that Costco widened its price gap over competitors at the pump and has been deliberate about keeping stock even as demand surged. The gas team, he noted, was managing multiple daily fuel deliveries to many locations just to keep up.

Tariffs, Refunds, and What Members Can Expect

Costco has been at the center of a high-profile tariff dispute. Following a U.S. Supreme Court decision that invalidated certain levies tied to President Donald Trump's import tariff program, the company had previously pledged to pass savings back to members if refunds were issued. 

Vachris confirmed that Costco has begun submitting refund claims through U.S. Customs and Border Protection. Based on other claimants' experience, the company expects to begin receiving approved refunds on a rolling basis within a few months of submission.

The plan is to return the funds to members in some form, though the timing and amount will depend on actual refund receipts and the outcome of ongoing litigation related to the return process. "Our goal is to be the first to lower prices and the last to raise them," said Vachris.

That phrase captures what makes Costco's model so durable. The warehouse giant already cut prices this past quarter on several Kirkland Signature items, including a reduction on Kirkland Signature Crispy Wings from $16.99 to $14.99 and king-size sheets from $89.99 to $79.99, according to CFO Gary Millerchip.

Digital Growth and the AI Opportunity

Costco's digital business grew comparable sales 21.5% in the quarter, and site and app traffic were up 37% YOY. Personalized product recommendation features delivered conversion rates that were three times higher than standard benchmarks and contributed just under $5 billion in e-commerce sales during the period.

Management also flagged an emerging opportunity in artificial intelligence (AI) search. Large language models are increasingly steering shoppers toward the best value for a given product, and Costco believes it stands to benefit. Accordingly, the company has been updating its online product pages to ensure its value proposition shows up clearly in AI-driven search results. While AI-generated traffic to Costco's website still represents a small slice of overall visits, it grew in the triple digits in the quarter and has the highest conversion rate of any traffic source.

Finally, same-day delivery — now available in the U.S., Spain, and France through third-party partners — averaged under 45 minutes in the U.S. with a healthy customer satisfaction rating.

Is Costco Stock Undervalued?

Valued at a market capitalization of $426.7 billion, Costco stock is down 12% from its all-time high. However, COST stock has also returned more than 500% for shareholders over the past decade.

Out of the 34 analysts covering Costco stock, 19 recommend a “Strong Buy” rating, three recommend a “Moderate Buy,” 11 analysts recommend a “Hold” rating, and one recommends a “Strong Sell” rating. The average price target of $1,099.37 represents potential upside of 13% from current levels.