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How Tariff Refunds Could Shape Costco's Earnings in Fiscal 2027
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Key Takeaways
Costco received $184M in Q4 tariff refunds and interest, a little over one-third of expected refunds.
Tariff refunds, net of member-value reinvestment, provided Costco a nonrecurring 15-cent EPS benefit.
Costco plans to reinvest most future tariff refunds in member value, primarily through lower prices.
Costco Wholesale Corporation’s (COST - Free Report) fourth-quarter fiscal 2026 results highlighted how the recovery of International Emergency Economic Powers Act (“IEEPA”) tariffs could influence its earnings profile in fiscal 2027. In the fourth quarter of fiscal 2026, the company received $184 million related to IEEPA tariffs, comprising $174 million of refunds and $10 million of interest. Management said this represented a little more than one-third of the total refunds expected. Costco had already received a similar amount in the first quarter of fiscal 2027.
The earnings impact, however, will depend on how much of these proceeds Costco retains versus reinvests. In the fourth quarter, tariff refunds, net of partial reinvestment in member value, contributed a nonrecurring benefit of 15 cents per share. Excluding this benefit, net income and EPS increased 12.3% and 12.4%, respectively. Management highlighted that tariff refunds and related reinvestment added nine basis points to gross margin.
Management intends to reinvest the majority of future refunds in increased member value, primarily through lower prices. During the fourth quarter, such investments included reductions across produce, meat, beverages, home furnishings and hardware.
Fiscal 2027 earnings could see periodic benefits from additional refunds, but the net contribution may vary depending on the pace and magnitude of reinvestment. Costco has already indicated that it intends to reinvest the majority of future refunds and separately disclose their net quarterly impact, making the distinction between reported earnings and underlying operating performance particularly important.
How Tariff Refunds Are Affecting Walmart and Target
Walmart Inc. (WMT - Free Report) is also using tariff refunds as a temporary earnings and margin benefit while directing much of the proceeds back into pricing. In the second quarter of fiscal 2027, Walmart said tariff refunds helped lift gross profit and operating income, with operating income receiving an approximately 750-basis-point net benefit after price investments. Walmart expects to continue prioritizing the remaining tariff refunds toward customer experience and price investments in the second half.
Target Corporation (TGT - Free Report) saw an even more pronounced second-quarter fiscal 2026 earnings benefit from tariff refunds. Target recognized $994 million of pretax tariff refunds, which added $752 million to net earnings and $1.65 to earnings per share. Target said the refunds contributed 3.7 percentage points to both gross margin and operating margin in the quarter. Its full-year guidance includes about 90 basis points of operating-margin benefit from second-quarter refunds, while excluding any potential future tariff refunds.
What the Latest Metrics Say About Costco
Costco has seen its shares tumble 2.5% over the past three months compared with the industry’s decline of 2.2%.
Image Source: Zacks Investment Research
From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 40.59, higher than the industry’s ratio of 27.39. However, it is trading below its 12-month median level of 45.14, indicating some moderation in valuation.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Costco’s current fiscal-year sales and earnings per share implies year-over-year growth of 7.9% and 10.4%, respectively. For the next fiscal year, the consensus estimate indicates a 7% rise in sales and 9.5% growth in earnings.
The Zacks Consensus Estimate for earnings for the current fiscal year has increased by 7 cents to $22.57 per share, while the estimate for the next fiscal year has risen by 25 cents to $24.71 per share over the past seven days.
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How Tariff Refunds Could Shape Costco's Earnings in Fiscal 2027
Key Takeaways
Costco Wholesale Corporation’s (COST - Free Report) fourth-quarter fiscal 2026 results highlighted how the recovery of International Emergency Economic Powers Act (“IEEPA”) tariffs could influence its earnings profile in fiscal 2027. In the fourth quarter of fiscal 2026, the company received $184 million related to IEEPA tariffs, comprising $174 million of refunds and $10 million of interest. Management said this represented a little more than one-third of the total refunds expected. Costco had already received a similar amount in the first quarter of fiscal 2027.
The earnings impact, however, will depend on how much of these proceeds Costco retains versus reinvests. In the fourth quarter, tariff refunds, net of partial reinvestment in member value, contributed a nonrecurring benefit of 15 cents per share. Excluding this benefit, net income and EPS increased 12.3% and 12.4%, respectively. Management highlighted that tariff refunds and related reinvestment added nine basis points to gross margin.
Management intends to reinvest the majority of future refunds in increased member value, primarily through lower prices. During the fourth quarter, such investments included reductions across produce, meat, beverages, home furnishings and hardware.
Fiscal 2027 earnings could see periodic benefits from additional refunds, but the net contribution may vary depending on the pace and magnitude of reinvestment. Costco has already indicated that it intends to reinvest the majority of future refunds and separately disclose their net quarterly impact, making the distinction between reported earnings and underlying operating performance particularly important.
How Tariff Refunds Are Affecting Walmart and Target
Walmart Inc. (WMT - Free Report) is also using tariff refunds as a temporary earnings and margin benefit while directing much of the proceeds back into pricing. In the second quarter of fiscal 2027, Walmart said tariff refunds helped lift gross profit and operating income, with operating income receiving an approximately 750-basis-point net benefit after price investments. Walmart expects to continue prioritizing the remaining tariff refunds toward customer experience and price investments in the second half.
Target Corporation (TGT - Free Report) saw an even more pronounced second-quarter fiscal 2026 earnings benefit from tariff refunds. Target recognized $994 million of pretax tariff refunds, which added $752 million to net earnings and $1.65 to earnings per share. Target said the refunds contributed 3.7 percentage points to both gross margin and operating margin in the quarter. Its full-year guidance includes about 90 basis points of operating-margin benefit from second-quarter refunds, while excluding any potential future tariff refunds.
What the Latest Metrics Say About Costco
Costco has seen its shares tumble 2.5% over the past three months compared with the industry’s decline of 2.2%.
Image Source: Zacks Investment Research
From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 40.59, higher than the industry’s ratio of 27.39. However, it is trading below its 12-month median level of 45.14, indicating some moderation in valuation.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Costco’s current fiscal-year sales and earnings per share implies year-over-year growth of 7.9% and 10.4%, respectively. For the next fiscal year, the consensus estimate indicates a 7% rise in sales and 9.5% growth in earnings.
The Zacks Consensus Estimate for earnings for the current fiscal year has increased by 7 cents to $22.57 per share, while the estimate for the next fiscal year has risen by 25 cents to $24.71 per share over the past seven days.
Image Source: Zacks Investment Research
Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.