Costco Q4 2026 Earnings: EPS $6.75, the $184M Tariff Refund, and What Comes Next
Costco earned $6.75 a share in its fiscal fourth quarter on $95.7 billion of revenue, 20 cents above consensus, but 15 cents came from a one-off $184 million IEEPA tariff refund. Stripped out, the beat was a nickel. The desk expects the net refund benefit to shrink below 10 cents a share next quarter as Costco puts more of the cash into prices.
Costco's customs broker had a good summer. In the 16 weeks to August 30, the retailer received $184 million from US Customs and Border Protection: $174 million of tariff refunds and $10 million of interest, chief financial officer Gary Millerchip said on Thursday's earnings call. That was "a little more than one-third" of the refunds it expects, and Costco has "already received a similar amount" in the current quarter. The benefit, net of what it handed back, added 15 cents to earnings per share of $6.75.
Excluding the refund, the quarter looks different. Consensus was $6.55. Reported EPS beat by 20 cents, or 3.1%; underlying EPS of $6.60 beat by five cents, or 0.8%. Revenue of $95.7 billion beat forecasts of $94.85 billion by 0.9%, and that part owed nothing to Washington. The shares closed at $896.48 before the release, down 0.9% on the day, and barely moved after hours. Investors seem to have done the subtraction already. The desk's view is that the refund is worth less to shareholders than it looks and more to Costco's franchise than it looks, because the company is spending it on members.
The money comes from a February ruling. In Learning Resources v. Trump, decided on February 20, the Supreme Court held 6-3 that the International Emergency Economic Powers Act does not let the president impose tariffs, killing the fentanyl and "reciprocal" duties levied since early 2025. Customs stopped collecting them on February 24. On March 4 Judge Richard Eaton of the Court of International Trade ruled that every importer that had paid them was owed a refund with interest, the AP reported. The government said it had collected $166 billion from more than 330,000 importers and could not refund that by hand. CBP built an automated system, CAPE, which opened on April 20 and pays each importer its refunds and interest in phased lump sums. By July, $81 billion had gone back. Costco had sued the government before the Supreme Court ruled, to make sure it would be in the queue.
The accounting shows what Costco did with the money before telling anyone. Management reported a net tariff benefit of nine basis points of gross margin, excluded from its "core" margin. Nine basis points of $93.87 billion in net sales is about $84 million. Costco received $174 million in refunds. The gap, roughly $90 million or about half, went into what Millerchip called "price reductions on a number of items in the second half of the quarter," in produce, meat, beverages, home furnishings and hardware. Add back the $10 million of interest, tax the total at a normal rate and divide by 444 million diluted shares, and you get close to the reported 15 cents. The numbers reconcile.
Going forward, Millerchip said, "we intend to continue reinvesting the majority of the dollars we receive in increased member values." If the expected total is a little under three times the $174 million received so far, Costco is looking at roughly $500 million of refunds. Spread over 84.1 million paid members, that is about $6 each, against a $65 basic annual fee. It is a gesture, and a cheap one to make.
The reason to make it is how Costco earns money. Membership fees were $1.849 billion in the quarter, up 7.3%, equal to 62% of net income of $2.998 billion. Merchandise runs at a gross margin of 11.02%, and the company treats that margin as a ceiling. Fee income depends on renewals, which were 92.3% in the US and Canada and 89.8% worldwide, both up 10 basis points, and on the 42.3 million executive members paying the higher tier. Every dollar of merchandise margin Costco gives back is spent defending the renewal rate on a fee stream worth about $6 billion a year on this quarter's run rate (1.849 times 52 over 16). The September 2024 fee increase has now lapped: Millerchip said this was the last quarter with a year-on-year benefit, so fee growth from here must come from adding members.
There is a second reason. In March, Illinois shopper Matthew Stockov filed a proposed class action in federal court in Chicago, Fortune reported, alleging that Costco raised prices on tariffed goods and would enjoy "double recovery" if it pocketed refunds too. Millerchip had said in May 2025 that Costco raised some prices because of tariffs. Price cuts funded by refunds, disclosed line by line on an earnings call, are the best exhibit a defence lawyer could ask for.
A shareholder could fairly object. Refunds are free cash; handing half of them to customers is a transfer from owners to members, and at 43 times trailing earnings (the $896.48 close divided by fiscal 2026 EPS of $20.76) Costco shareholders are already paying for perfection. Why forgo a clean one-off? Because the one-off is small. Even $500 million pre-tax is about one month of membership fees, while a one-point fall in renewal rates on 84 million members costs far more every year. Low merchandise margin in exchange for high renewal is the trade Costco has always made. The refund does not change the multiple, and nobody should pay for it.
Members get a few dollars back through the shelf price. Costco gets a defensible story in the Stockov case and traffic from rivals. Walmart, whose Sam's Club competes head-on, and Target are also importers of record with their own refunds in the CAPE queue; both now face the question Costco answered on Thursday, and investors will notice which ones keep the cash. BJ's Wholesale, with a smaller margin cushion, has the least room to match price cuts funded by someone else's windfall. The Treasury pays interest on every delayed dollar.
The desk expects Costco's fiscal first-quarter results, due in mid-December, to show gross refunds at least as large as the fourth quarter's $174 million and a net earnings benefit below 10 cents a share, with core gross margin flat or up year on year. A net benefit above 15 cents would mean Costco kept more than it said it would, and would weaken the franchise argument. Before then, monthly sales reports starting in early October will show whether the price cuts are lifting comparable sales ex-gas above the 6.7% recorded in the fourth quarter, and Costco's 10-K, due in October, should give the first formal disclosure of total refunds expected.