Will Costco report healthcare costs exceeding sales growth for 3+ consecutive quarters by Q4 FY2026?

Management explicitly characterized healthcare cost growth exceeding sales growth as 'structural' rather than one-time — this is unusual transparency and signals they expect continuation. The BLS healthcare cost index has been persistently elevated at 7-10% annually, while Costco's comp sales growth is mid-single-digits (+6.4% adjusted Q1 FY2026). Even total revenue growth (+8.2% FY2025) may not consistently outpace healthcare cost inflation. With only 2 more quarters needed (Q2 and Q3 FY2026) and healthcare inflation largely outside Costco's control, the base case is continuation.

Resolution requires 3 CONSECUTIVE quarters — Q1 FY2026 is confirmed, we need Q2 AND Q3. Healthcare cost inflation is macro-driven (BLS healthcare index), suggesting 6-8% annual growth. Costco's total sales growth was 8.2% in FY2025, but this includes new warehouse openings (29 net new). Management's framing as 'structural' is the strongest signal — companies rarely flag transitory costs this prominently. However, management may have been managing expectations ahead of the membership fee increase offset. The compound probability of two consecutive quarters both showing healthcare exceeding sales growth introduces some uncertainty.

Base rate analysis: when management explicitly identifies a cost pressure as 'structural,' it typically persists for multiple quarters. SG&A leverage has already failed for 3 consecutive quarters (Q3-Q4 FY2025, Q1 FY2026), with healthcare being a contributing factor — this corroborates the structural thesis. The membership fee increase helps operating income but doesn't directly reduce healthcare cost growth relative to sales growth. Counter-argument: Costco's e-commerce (+20.5%) and digital growth could drive outsized revenue acceleration. But healthcare per employee compounds at 7-10% annually, and Costco's workforce is growing with warehouse expansion.

The math is relatively straightforward: BLS healthcare inflation runs 7-10% annually, Costco's comp sales are mid-single-digits. Management already identified Q1 FY2026 as healthcare exceeding sales — suggesting even total revenue growth (including new warehouses at ~8%) was insufficient to outpace healthcare cost growth. The only realistic scenario for NO is if Costco's revenue growth accelerates materially or healthcare inflation suddenly moderates. Neither appears likely in the near term based on current macro trends and the committee's analysis.

Two factors push in opposite directions. FOR: Management's explicit 'structural' characterization (strongest signal), BLS healthcare index persistently elevated, SG&A deleverage pattern already established across 3 quarters. AGAINST: Only one data point for healthcare specifically exceeding sales growth, Costco's revenue growth has been accelerating (5.0% to 8.2% FY2024-FY2025), Costco could renegotiate healthcare plans or shift benefit design. The 'structural' framing is significant but resolution requires BOTH Q2 and Q3 to continue the pattern — some probability exists that one quarter shows moderation through seasonal variation or plan renegotiation.

Approaching this as a conditional probability: P(Q2 exceeds) * P(Q3 exceeds | Q2 exceeds). Given management's 'structural' framing and healthcare inflation trends, P(Q2 exceeds) is approximately 0.75-0.80. Conditional on Q2 confirming the pattern, P(Q3|Q2) rises to 0.80-0.85 because a second consecutive data point would further validate the structural thesis. This gives roughly 0.60-0.68. The resolution source is management commentary in earnings calls — management is unlikely to reverse their 'structural' characterization unless healthcare costs genuinely moderate. The Stress Scanner's 75-125bp margin compression modeling incorporates sustained healthcare pressure, reinforcing the structural view.

Management called it structural. Healthcare inflation is persistent per BLS data. SG&A already deleveraging for 3 quarters. Two more quarters needed for resolution. The pattern favors continuation, but only one healthcare-specific data point exists. Tilts toward YES but not decisively — mid-50s probability reflects that structural characterization is a strong but not overwhelming signal given limited data.

Key tension: management says structural (argues for YES), but only one quarter of data (argues for caution). Healthcare costs rising faster than retail sales is consistent with macro trends, but Costco could take mitigating actions — benefit plan redesign, employee cost-sharing adjustments, or preferential negotiating leverage given scale (900+ warehouses). Resolution also depends on how 'healthcare costs exceeding sales growth' is measured and reported in earnings calls. Near coin-flip reflects genuine uncertainty with limited data despite directional signal from management.

Healthcare costs are largely externally driven (BLS healthcare cost index), limiting Costco's ability to control the trend in a 2-quarter window. Management explicitly flagged this as structural — companies don't make such declarations lightly. The SG&A deleverage pattern across 3 consecutive quarters provides corroborating evidence of persistent cost pressure. The Black Swan Beacon's 'Margin Vise' scenario (10-15% probability) incorporates sustained healthcare cost growth, suggesting even tail-risk analysis supports continuation.