Costco Earnings This Week: The Tariff Risk Nobody Is Pricing
Wall Street models $6.53 EPS for Costco this week, but Oppenheimer warns tariff refund benefits may be masking a core earnings miss. Here's the setup.
Key Points
- Wall Street consensus models $6.53 EPS (+11.2% YoY) on $94.9 billion in revenue (+10.1% YoY) for Costco, but Oppenheimer's Rupesh Parikh warns core earnings may fall short if tariff refund tailwinds are stripped out.
- The tariff refund benefit is a one-time accounting artifact, not an operating improvement — and its distortion of the headline number means the miss risk is structurally higher than the consensus beat rate implies.
- Darden Restaurants reports the same week with $2.05 EPS on $3.2B revenue expected; LongHorn vs. Olive Garden performance divergence is the key read on whether casual dining can withstand a freshly hiking Fed.
Costco's earnings report this week is the single biggest binary event for large-cap retail in September, and the setup is more treacherous than the headline numbers suggest. Wall Street is modeling $6.53 EPS — an 11.2% year-over-year increase — on $94.9 billion in revenue that would represent 10.1% growth, but Oppenheimer analyst Rupesh Parikh has issued a direct warning: strip out the tariff refund benefits that have been inflating recent results, and the core earnings picture may again fall short of what the Street has priced in.
The Number Behind the Number
Parikh's concern is specific and quantifiable in its logic, even where the precise tariff refund dollar amount isn't publicly broken out by Costco management ahead of the print. The issue is structural: when tariffs are adjusted, refunded, or reclassified, the benefit flows through cost of goods in the period it's recognized — it is a one-time accounting event that boosts margins and therefore EPS without reflecting any improvement in underlying purchasing power, membership pricing, or operational efficiency. If Q4 results include a material tariff refund benefit, the reported $6.53 EPS could be met or beaten on paper while the business's true operating trajectory is running below consensus expectations.
This matters because Costco trades at a premium valuation that already embeds a high-quality compounder narrative. The stock's multiple is not priced for operational softness — it is priced for consistent execution. Parikh holds an Outperform rating and explicitly frames any post-earnings weakness as a buying opportunity, which is a signals-aware call: he is telling investors the dip is more likely than consensus acknowledges, but that the fundamental thesis remains intact for those with a longer horizon. That is materially different from a bear case. It is a sequencing call — the entry point matters when a stock trades at Costco's valuation.
The $94.9 billion revenue estimate is particularly important to monitor independently of EPS. Revenue at Costco is harder to inflate through accounting adjustments — it reflects actual transaction volume at the warehouse floor. Tariff refunds don't pad the top line. If revenue misses $94.9 billion, it signals that consumer traffic, average basket size, or both are softening in ways the EPS line may not immediately reveal. Conversely, a revenue beat paired with an EPS miss would be the textbook tariff refund distortion — high volume, compressed sustainable margins, inflated periodic benefit. Watch for management to either quantify or conspicuously avoid quantifying the tariff contribution during the call.
The Fed Hike Context No Retail Analyst Is Discussing Loudly Enough
The week's earnings calendar doesn't exist in a vacuum. The Fed's first rate hike since 2023 hit this week, and its effect on the consumer spending backdrop for Costco and its peers isn't a 2027 problem — it begins repricing consumer credit costs and household cash flow math immediately. Costco's membership model creates a layer of insulation: members have already paid their annual fee, creating a sunk-cost psychology that drives warehouse visits regardless of marginal economic anxiety. But high-ticket discretionary categories — electronics, appliances, jewelry — that generate outsized revenue per transaction are precisely the categories that soften first when households perceive their credit environment tightening.
Costco's same-store sales data embedded in the Q4 report will be the cleanest read on whether that dynamic has begun. Analysts will dissect the U.S. comparable sales figure for signs that e-commerce growth — which has been running above overall same-store trends — is cannibalizing in-store discretionary traffic rather than supplementing it. Any slowdown in e-commerce growth would be a genuine surprise given the company's recent digital infrastructure investment. Membership renewal rates are the other key metric: if renewal rates hold above 92% — the recent historical norm — it signals the consumer relationship is intact regardless of macro pressure.
Darden Restaurants brings a complementary read on consumer health the same week. UBS analyst Dennis Geiger's expectation of "solid same-store-sales trends" for Darden comes with an important asterisk: Olive Garden, which remains the company's largest revenue contributor by a significant margin, has been the weak link in recent quarters while LongHorn Steakhouse continues to outperform. The $2.05 EPS estimate on $3.2 billion revenue implies 4.1% profit growth and 6.7% top-line growth — achievable numbers if LongHorn's momentum offsets Olive Garden's drag, but the blended same-store-sales number will determine whether Darden management has successfully reframed the narrative around its stronger brands or whether Olive Garden's weakness is large enough to pull the entire print below the line.
What Traders Watch Next
The Costco earnings report — scheduled after the close this week, with the precise date confirmed for later in the week following Tuesday's AutoZone and Ferguson reports — creates a defined event window. Traders positioning ahead of the print need to decide whether Parikh's tariff-refund caveat is already embedded in options pricing or whether the implied volatility around COST reflects a more optimistic consensus expectation.
If Costco delivers the $6.53 EPS headline but misses $94.9 billion on revenue, expect the after-hours reaction to be disproportionately negative relative to the EPS beat — the market will correctly identify the tariff accounting tailwind and re-rate the quality of the earnings immediately. The actionable scenario Parikh is describing is a stock that trades down 3–5% on a mixed report before recovering for longer-term buyers. That recovery thesis depends on whether management provides forward guidance that confirms the core business — membership growth, warehouse traffic, renewal economics — is intact entering fiscal 2027.
For Darden, the number to isolate is LongHorn's same-store-sales growth relative to Olive Garden's. A spread of more than 400 basis points between the two brands would confirm that the company's growth is narrowing to a single concept rather than a portfolio, which has valuation implications that the $2.05 consensus estimate doesn't fully capture. The Fed hike is the medium-term overhang for both names — consumer-facing companies with significant discretionary exposure face a rate environment that last existed in 2023, and the market's assumption that AI tailwinds and resilient household spending offset rate pressure will be tested in every retail and restaurant earnings print between now and year-end. Costco's report, with its tariff refund complexity, is the most analytically demanding read of the week, and the post-earnings price action in the $780–$800 range — depending on where COST trades into the print — will set the tone for the entire consumer staples sector heading into Q4.
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