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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Costco and Target are both major U.S.-anchored retailers, but they make money in fundamentally different ways. Costco combines paid memberships, warehouse scale, rapid inventory turnover and low merchandise markups. Target relies on a curated general-merchandise assortment, store traffic, digital channels and stores that also fulfill online orders. Costco’s latest reported annual results (fiscal 2026, ended August 30, 2026) showed strong growth, while Target’s latest annual results (fiscal 2025, ended January 31, 2026) showed declining sales and operating income. Those periods are not concurrent, and the available figures do not establish which stock is cheaper or the better investment at a current market price.
The fundamental difference: membership warehouse versus curated retailer
How Costco makes money
Costco says its model is built around membership warehouses and e-commerce sites offering low prices on a limited selection of national brands and private-label products. The company says that combination is intended to produce high sales volumes and rapid inventory turnover. Volume purchasing, efficient distribution and limited handling in no-frills, self-service warehouses allow Costco to operate profitably at significantly lower gross margins than many traditional retailers. Costco investor overview
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Membership fees are therefore more than a side revenue stream. They support the value proposition that attracts shoppers, while the warehouse model encourages members to consolidate purchases and visit regularly. Renewal rates provide a recurring indicator of whether customers continue to see enough value in the membership.
How Target makes money
Target describes a different proposition: a curated, multi-category assortment delivered through stores and digital channels, differentiated by design, style and value. Its offer spans everyday essentials and discretionary categories rather than Costco’s deliberately limited warehouse selection. Target FY2025 annual-report business section
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Target’s stores are both shopping destinations and operating infrastructure for digital orders. That makes store location, inventory availability, labor and fulfillment execution important to the economics of its online business as well as its physical sales.
Customer economics side by side
| Question | Costco | Target |
|---|---|---|
| Primary customer promise | Low prices on a limited selection, with membership access | Curated assortment combining design, style, value and convenience |
| Core physical format | Membership warehouses | General-merchandise stores |
| Key recurring relationship measure | Membership renewal rate | Traffic, transaction size and repeat shopping reflected in comparable sales |
| Role of stores in digital commerce | Warehouses and e-commerce sites serve members | Stores fulfilled 97.6% of merchandise sales in fiscal 2025 |
The models create different sensitivities. Costco’s results depend heavily on membership growth and retention, warehouse productivity, gasoline and foreign-currency effects, and the ability to maintain volume without undermining the value proposition. Target is more exposed to changes in discretionary demand, category mix, store traffic, promotions, inventory execution and the cost of operating a broad store network.
What the latest annual results actually show
The latest annual filings provide useful operating evidence, but they cover different 52-week periods. Costco’s fiscal 2026 ended August 30, 2026; Target’s fiscal 2025 ended January 31, 2026. Treating the percentages as if they came from the same economic period would overstate the precision of a direct comparison. Costco FY2026 Form 10-K Target FY2025 Form 10-K
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| Measure | Costco fiscal 2026 | Target fiscal 2025 |
|---|---|---|
| Fiscal year-end | August 30, 2026 | January 31, 2026 |
| Net sales | $297.247 billion, up 10% | $104.780 billion, down 1.7% |
| Comparable sales | Up 8% | Down 2.6% |
| Traffic or shopping-frequency detail | Shopping frequency up 3% | Traffic down 2.2% |
| Ticket or transaction detail | Average ticket up 5% | Average transaction amount down 0.4% |
| Operating income | Not included in the supplied annual comparison figures | $5.117 billion, down 8.1% |
| GAAP operating-income margin | Not included in the supplied annual comparison figures | 4.9%, versus 5.2% in fiscal 2024 |
Costco’s reported sales increase was helped by identifiable factors rather than representing a purely volume-driven result. Higher gasoline prices contributed 130 basis points to sales growth, and foreign-exchange changes contributed 49 basis points. The company’s 8% comparable-sales increase consisted of a 5% increase in average ticket and a 3% increase in shopping frequency. Costco FY2026 Form 10-K
Target’s figures point in the opposite direction for its reported year. Net sales fell 1.7%, comparable sales fell 2.6%, traffic declined 2.2% and the average transaction amount declined 0.4%. Operating income dropped 8.1% to $5.117 billion, and GAAP operating margin contracted to 4.9% from 5.2%. Target FY2025 Form 10-K
Why Costco’s growth needs to be unpacked
Sales growth versus underlying demand
A 10% increase in reported net sales is important, but investors should separate the components. Costco’s 8% comparable-sales growth indicates performance from the existing base under the company’s definition, while the 5% average-ticket increase and 3% shopping-frequency increase show how that result was produced. Gasoline prices and currency movements also lifted the reported number. A period of higher fuel prices can raise sales dollars without delivering the same merchandise economics as stronger demand for general merchandise.
Membership fees and renewal
Costco’s membership-fee revenue rose 11% to $5.907 billion in fiscal 2026. At year-end, renewal was 92.3% in the United States and Canada and 89.8% worldwide. These figures describe different geographies and should not be blended into one rate. Costco FY2026 Form 10-K
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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteFor an investor, renewal is a useful diagnostic rather than a complete forecast. High renewal can support recurring fee income and steady warehouse traffic, but future results still depend on new-member additions, membership upgrades, warehouse openings, spending per member and operating costs.
Low merchandise margins are intentional
Costco’s comparatively low merchandise gross margins should not automatically be interpreted as weak pricing power. The company explicitly links lower margins to its value strategy, purchasing scale, efficient distribution and reduced merchandise handling. The relevant question is whether high volume, rapid turnover and membership income produce satisfactory operating cash generation and returns on invested capital—not whether Costco matches a conventional department-store markup.
What Target’s weaker year says—and does not say
Traffic and basket both moved against Target
Target’s fiscal 2025 comparable-sales decline had two components: traffic fell 2.2% and the average transaction amount fell 0.4%. That combination suggests the pressure was not limited to fewer visits or smaller baskets alone. Investors should examine subsequent quarters for evidence that traffic, transaction size or category mix is stabilizing, because one annual period does not establish a permanent trend.
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Operating leverage matters
Target’s operating income declined faster than sales: operating income fell 8.1% while net sales fell 1.7%. Its GAAP operating-income margin moved from 5.2% to 4.9%. That pattern indicates reduced operating leverage in the reported year. Possible causes can include gross-margin pressure, promotions, shrink, fulfillment expense, labor, supply-chain costs or other operating items, but the supplied annual figures do not isolate each factor sufficiently to assign a single cause.
Comparable-sales definitions are not interchangeable
Target cautions that comparable-sales measures vary across retail companies and that its calculation is not necessarily comparable with similarly titled measures reported by other companies. Costco’s 8% comparable-sales figure and Target’s 2.6% decline should therefore be read as company-defined indicators, not as a perfectly standardized industry test. Target FY2025 Form 10-K
Digital commerce and the role of stores
Target’s stores are fulfillment assets
Stores fulfilled 97.6% of Target’s merchandise sales in fiscal 2025. Digitally originated comparable sales rose 3.1%, while store-originated comparable sales fell 4.0%. These figures show why Target cannot be evaluated solely as either a store chain or an online retailer: the same physical network supports shopping, pickup, shipping and inventory positioning. Target FY2025 annual-report business section
The trade-off is operational complexity. Store-based fulfillment can shorten delivery distances and improve convenience, but it also requires accurate inventory, adequate labor and disciplined fulfillment costs. A rise in digital sales is not automatically positive if each order carries unattractive economics.
Do not force a like-for-like digital comparison
Costco and Target describe digital and store activity through different company-specific measures. Target’s digitally originated and store-originated comparable-sales statistics should not be treated as equivalent to Costco’s warehouse or e-commerce disclosures without checking definitions, included channels and time periods. A sound comparison asks how each company converts digital demand into profitable sales, not which reported channel percentage is larger.
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Costco’s margin architecture
Costco’s model intentionally accepts lower merchandise gross margins in exchange for volume and turnover. Membership fees are an important part of the overall profit model, and the company’s warehouse format is designed to limit handling and distribution costs. Investors should track sales productivity, renewal, membership income, inventory turnover and operating expense discipline together.
Target’s conventional retail margin pressures
Target’s 4.9% GAAP operating-income margin in fiscal 2025, down from 5.2%, gives a clear measure of the year’s profitability decline. But comparing that percentage directly with Costco’s margin without accounting for Costco’s deliberately low merchandise markup and membership-fee structure would obscure the business differences. For both companies, examine operating income, cash flow, capital spending, inventory and return metrics over multiple periods.
How to evaluate the stocks rather than only the businesses
Start with a common valuation date
The annual filings do not include a verified current share-price comparison. A stock decision requires closing prices for COST and TGT on the same as-of date, share counts or market capitalizations measured consistently, and an identified earnings basis. Without those inputs, it is not supportable to claim that Costco is expensive, Target is cheap, or either is the better investment.
Use matching valuation definitions
Once a date is selected, calculate or source the same measures for both companies, such as price-to-earnings, enterprise value to operating income or EBITDA, price-to-sales and free-cash-flow yield. State whether earnings are trailing, fiscal-year, forward consensus or adjusted. Do not compare a forward multiple for one company with a trailing multiple for the other.
Adjust for the fiscal-calendar mismatch
Costco’s latest cited year ended August 30, 2026, whereas Target’s ended January 31, 2026. An investor comparing current prices with those results should identify which subsequent quarters are available, annualize nothing without explanation and note seasonality. Target’s fiscal year includes the important holiday period in a different position from Costco’s reporting calendar, so timing can affect year-over-year interpretation.
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A practical decision framework for different investor priorities
When Costco may fit the thesis
- You want exposure to a membership-based retailer with recurring fee revenue and high customer renewal.
- You believe warehouse scale, purchasing efficiency and rapid turnover can sustain attractive returns despite low merchandise margins.
- You are comfortable monitoring gasoline, foreign-exchange and membership trends as important influences on reported growth.
- You can justify the purchase price with a dated valuation analysis rather than relying on operating momentum alone.
When Target may fit the thesis
- You are evaluating a curated general-merchandise retailer whose stores support both shopping and digital fulfillment.
- You believe traffic, transaction size, category mix or operating margins can recover after the fiscal 2025 declines.
- You are prepared to assess execution in inventory, promotions, shrink, labor and store-based fulfillment.
- You have examined the valuation against a realistic recovery scenario and the company’s latest available outlook.
When neither conclusion is ready
If the evidence supports a business comparison but not a current-price judgment, the disciplined answer is to wait for aligned valuation inputs. Strong Costco operating results do not prove the stock will outperform, and weak Target results do not prove the shares are a bargain. Expected return depends on the gap between business performance and the price already reflected in the stock.
Common mistakes in a Costco-versus-Target comparison
- Comparing different fiscal periods as if they were simultaneous. Use the fiscal year-end dates beside every annual figure.
- Treating reported sales growth as pure demand growth. Costco disclosed gasoline and foreign-exchange contributions to fiscal 2026 growth.
- Assuming low gross margins mean a weak Costco model. Costco says low merchandise margins are part of its volume-and-turnover strategy.
- Calling Target’s digital growth a complete turnaround. Digitally originated comparable sales rose 3.1% while store-originated comparable sales fell 4.0% in fiscal 2025; the store network still fulfilled 97.6% of merchandise sales.
- Putting comparable-sales percentages on one standardized scale. Target expressly warns that retail comparable-sales calculations differ by company.
- Declaring a winner without market data. A stock comparison requires same-date prices, market capitalizations and consistently defined valuation ratios.
- Repeating management expectations as results. Filings contain forward-looking statements subject to risks and uncertainties; distinguish plans from realized performance.
What to monitor in the next filings
For Costco, follow membership additions and upgrades, renewal by geography, fee revenue, comparable sales excluding or explaining fuel and currency effects, ticket and frequency, warehouse openings, inventory turnover and operating expenses. For Target, follow traffic, average transaction amount, category performance, comparable sales by channel, operating margin, inventory and shrink, fulfillment economics, store productivity and management’s current-year outlook.
Read the companies’ definitions before building a spreadsheet. Keep reported and constant-currency figures separate, label one-time or promotional effects, and record whether a metric is GAAP, adjusted or management-defined. That process makes the comparison more reliable than ranking two headline percentages.
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Bottom line for investors
Costco is a membership-and-scale compounder whose latest cited annual results showed 10% net-sales growth, 8% comparable-sales growth and 11% membership-fee growth, supported partly by gasoline and currency effects. Target is a curated, store-and-digital retailer whose latest cited annual results showed declining sales, comparable sales and operating income, while its stores remained central to fulfillment. The businesses are genuinely different, and the fiscal periods are not aligned. Decide between the stocks only after adding same-date prices, market capitalizations, consistent valuation measures and the latest available Target results; the operating figures alone do not identify the better-priced investment.
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