Inflation Just Hit 3.8% and Nine Out of Ten Costco Members Re-Up Every Year. Here Is Why That Math Matters.

The long-term case for Costco rests on the fact that its membership model strengthens when inflation squeezes household budgets, and the data entering mid-2026 says that squeeze is back.

Costco (NASDAQ:COST | COST Price Prediction) closed Q2 FY2026 with 82.1 million paid memberships and an 89.7% worldwide renewal rate, a figure so stable across quarters it functions more like a utility’s customer base than a retailer’s. Membership fee income reached $1.355 billion, up 13.6% year over year, and Executive members now drive 75.8% of sales. These customers pay annually for the right to shop, and roughly nine in ten of them re-up each year. The cash flow profile resembles a software subscription with a forklift attached.

Compounding through cash generation

FY2025 produced $275.235 billion in revenue, $8.099 billion in net income, and $7.837 billion in free cash flow, with full-year EPS of $18.21. Trailing return on equity sits at 29.6%. Capital returns are modest but real, with $903 million in buybacks during FY2025, another $419 million in the first 24 weeks of FY2026, and a regular dividend yielding 0.52% that the company has historically supplemented with periodic special distributions. Shareholders’ equity climbed to $32.087 billion, up 25.45% year over year, while cash on the balance sheet reached $17.383 billion, up 40.68%. So the business funds expansion toward 942 warehouses while still repurchasing shares, without leverage gymnastics.

Why it survives the next inflation wave

March 2026 headline PCE inflation accelerated to 3.5% year over year, with energy prices spiking 14.43% and goods inflation reversing from deflationary territory a year earlier. April CPI hit 333.020, the fourth straight monthly increase. The inflation rate is now 3.8% and more than expectations. When grocery and gasoline lines rise, Costco’s bulk pricing and Kirkland Signature private label tend to gain wallet share. Q2 FY2026 already showed the pattern, with comparable sales of 7.4%, global traffic of 3.1%, and digital comps of 22.6%. Management has been offsetting tariff exposure through supplier negotiations and local sourcing rather than passing costs to members, which protects renewal economics directly.

I believe it won’t just survive, but thrive if inflation keeps kicking in and customers are forced to buy from Costco. Customers typically buy more from Costco during inflation. Because inflation stretches household budgets, consumers increasingly flock to wholesale clubs to seek better value and stretch their purchasing power.

Where it lags, and why that is fine

At a trailing P/E of 52x and a beta of 0.908, Costco will underperform in a sharp risk-on rally where speculative growth names lead, and it can suffer multiple compression on any modest comp deceleration, as it did after Q4 FY25. For a forever holder, that is the price of admission. The ten-year record explains why you own it anyway. The stock has compounded 737.34% over the past decade by doing the same thing every quarter while the rest of retail churned through leadership cycles, format wars, and pricing experiments. Multiple compression in any given year does not unwind the underlying earnings machine; renewal rates and Executive penetration would have to break first, and there is no sign of either weakening.

The compounding case rests on renewal economics holding through the next inflation cycle. Regardless, COST stock is one of the most expensive retail picks you can put in your portfolio right now. This is worth it if customers indeed flock here and inflation keeps rising.