Can Costco Outgrow Retail Headwinds? The Balance Sheet Says Yes

Costco Wholesale Corporation’s COST balance sheet strength provides a cushion against a tough retail environment. The company ended the first quarter of fiscal 2026 with $16,217 million in cash and cash equivalents. This substantial liquidity is complemented by $966 million in short-term investments as of Nov. 23, 2025, bringing total liquid assets to $17,183 million. This liquidity allows Costco to absorb short-term disruptions without compromising operational commitments.

The company’s disciplined approach to debt is equally noteworthy. While current liabilities totaled $41,805 million, current assets of $43,411 million provide a modest cushion over near-term obligations, reflecting a balanced working capital position. Costco’s limited leverage further strengthens its defensive profile. Long-term debt, excluding the current portion, was $5,666 million, while shareholders’ equity was $30,303 million.

Cash flow generation strengthens this position. During the quarter, Costco generated $4,688 million in cash from operations, comfortably covering $1,526 million in capital expenditures. With full-year capital spending projected at around $6.5 billion, the company appears well-positioned to fund growth initiatives. This internal capital generation supports Costco's warehouse expansion, with 28 net new openings planned for fiscal 2026.

Another pillar supporting Costco’s balance sheet is its membership fee model. Membership fee income rose 14% year over year to $1,329 million, alongside a 5.2% increase in total paid memberships. With 81.4 million paid members and a worldwide renewal rate of 89.7%, the company maintains a highly predictable and stable cash flow stream.

Costco’s significant cash reserves and low leverage shield it from market volatility. This financial stability, supported by a loyal membership base, ensures the company can comfortably fund its expansion plans.

What the Latest Metrics Say About Costco

Costco, which competes with Dollar General Corporation DG and Target Corporation TGT, has seen its shares up 1.3% in the past year compared with the industry’s growth of 9.9%. While shares of Dollar General have surged 105.1%, those of Target have dropped 27% in the aforementioned period.
 

From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 46.90, below its median level of 48.59 but higher than the industry’s ratio of 31.82. COST carries a Value Score of D. Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 13.47) and Dollar General (21.27).
 

The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 7.6% and 11.7%, respectively. For the next fiscal year, the consensus estimate indicates a 7.2% rise in sales and 9.2% growth in earnings.
 

Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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