Will Costco fail to achieve SG&A leverage for 4+ consecutive quarters by Q4 FY2026 despite comp sales above 5%?

The critical analytical factor is that Q2 FY2026 compares against Q2 FY2025 — the one quarter that DID achieve SG&A leverage. This means the YoY comparison bar is already low (SG&A % was already favorable in the prior year). To show leverage improvement, Costco needs SG&A % to decline below an already-efficient Q2 FY2025 level. Meanwhile, healthcare costs grew faster than sales for the first time in Q1 FY2026 and management characterized this as structural, not transitory. Extended warehouse hours (June 2025) add ongoing labor costs. The one-time Q1 tax charge (4bps) does go away, which slightly helps, but the structural headwinds from healthcare and wages likely outweigh this one-time relief. Comp sales should remain above 5% given recent 6.4% trajectory. Near coin-flip, slightly favoring YES given the tough comparison quarter and structural healthcare headwind.

The committee resolved that of 3 quarters of SG&A deleverage, only 1-2 were genuine failures — the rest were explained by deliberate investments and one-time items. The Q1 FY2026 tax charge (4bps headwind) is non-recurring, and Q2 FY2026 will not face this specific drag. The membership fee increase (Sep 2024) continues to provide revenue tailwind. Q2 is Costco's holiday quarter (November-February), which tends to have higher sales volume, improving fixed cost absorption. While healthcare costs are a new structural headwind, Costco's SG&A at 9.08% is already at industry-leading lows — the committee noted operating margin still expanded for 3 consecutive years because gross margin improvements offset SG&A pressure. The question is specifically about SG&A leverage, not total margin. I weight the Q2 seasonal advantage and one-time charge removal as modestly favoring leverage achievement, placing this slightly below 50%.

SG&A growth at +9.5% YoY materially outpaces revenue growth at +8.2%. This is the core math — for SG&A leverage to be achieved, this gap must close or reverse. The drivers of excess SG&A growth are largely structural: >$31/hr average wages (industry-leading and unlikely to decline), healthcare costs growing faster than sales (management called this structural), and extended warehouse hours adding labor costs. The membership fee increase helps the denominator but the increase was also in effect during Q3-Q4 FY2025 and Q1 FY2026 when leverage failed. The only discrete improvement for Q2 is removal of the 4bps one-time tax charge. The cross-lens context is telling: the Stress Scanner identifies SG&A deleverage as the first step in a degradation sequence, and the Myth Meter questions whether margin expansion toward 4.0%+ is achievable without SG&A leverage. The trend direction favors continued deleverage.

Three quarters of deleverage, but the committee says only 1-2 were genuine. The Q1 tax charge goes away. Q2 is seasonally strong. Costco comp sales at 6.4% adjusted are well above the mid-single-digit threshold the analysis identifies as necessary for leverage. The real wildcard is healthcare costs — management flagged this as structural for the first time in Q1. If healthcare cost growth moderates even slightly in Q2, leverage is achievable. The 9.08% SG&A ratio is so low that even small changes in numerator or denominator swing the YoY comparison. I see this as a genuine coin-flip with slight lean toward NO (leverage achieved) due to one-time charge removal and holiday quarter volume.

The math is straightforward: SG&A growing at 9.5% while revenue grows at 8.2%. That 130bps gap in growth rates is what drives deleverage. For Q2 FY2026 to achieve leverage, either SG&A growth must slow or revenue growth must accelerate. The one-time tax charge removal helps modestly (4bps), but healthcare costs as a new structural headwind likely adds more than 4bps of pressure. Extended warehouse hours have been in effect since June 2025 and continue to add labor costs. The comparison is against Q2 FY2025 which already achieved leverage — meaning the bar is set at an efficient quarter. Comp sales above 5% are likely given recent trajectory, so the second condition is almost certainly met. I lean slightly YES — the structural cost pressures are real and the tough comparison quarter makes this more likely than not.

This is genuinely uncertain. Arguments on both sides are well-balanced. FOR YES: structural healthcare headwind, tough Q2 FY2025 comparison, extended warehouse hours costs, wages >$31/hr with no sign of moderating. FOR NO: one-time tax charge (4bps) removed, Q2 holiday quarter provides volume leverage, membership fee increase helps denominator, committee judged only 1-2 genuine failures. The committee's unresolved debate — structural vs. investment — is the core uncertainty. If healthcare costs are truly structural and growing faster than sales, the leverage threshold may have shifted from mid-single-digit comps to high-single-digit comps. But one quarter's data on healthcare is insufficient to confirm a structural shift. Setting at 0.50 reflects genuine maximum uncertainty.

Three consecutive quarters of SG&A deleverage despite 6.4% comps is the strongest signal. Healthcare costs grew faster than sales for the first time — structural per management. Q2 FY2025 was the one good quarter, making the comparison tough. One-time tax charge removal helps but the structural pressures outweigh it. Slight lean toward YES.

Committee says only 1-2 of 3 quarters were genuine SG&A failures. Q2 is holiday quarter with better volume leverage. Tax charge 4bps headwind goes away. Membership fee increase helps revenue denominator. The structural healthcare concern is valid but only one quarter of data. Slight lean toward NO — leverage may be achieved in Q2.

SG&A growing 9.5% vs revenue 8.2% is the core tension. Extended warehouse hours and healthcare costs are ongoing pressures. But Q2 is seasonally strong and the one-time tax charge goes away. Very close to 50/50. Comp sales will almost certainly exceed 5%, so that condition is likely met. Essentially a coin-flip.