Will Rising Gas Prices Send Costco's Stock Higher?

Key Points
Higher gas prices will drive more customers to refuel at Costco.
That pressure will also drive them to buy cheaper bulk products at its stores.
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As the Iran War drives up gas prices, many retail stocks are retreating amid investor concerns about softer consumer spending. However, one retail stock that could actually benefit from higher gas prices is Costco (NASDAQ: COST), the world's largest warehouse club retailer.
Why would lower gas prices boost Costco's sales?
Costco's member-only gas stations sell fuel at lower prices than local averages, often with discounts of $0.20 per gallon or more. As national gas prices rise, more drivers will likely flock to its gas stations and visit its warehouse stores.
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Higher gas prices will also drive shoppers to tighten their budgets, and Costco attracts budget-conscious consumers with its lower prices for bulk products. Therefore, its sales of essential products should rise as other retailers struggle to sell discretionary products. Costco also offers other ancillary services -- including vision, insurance, and travel bundles -- at lower rates to increase the stickiness of its membership plans. If the Iran War drags on, Costco could attract more new members with its low gas prices and discounted goods and services.
Higher gas prices will drive up Costco's transportation and energy costs, but it can offset those costs by continually adding more cardholders, maintaining high renewal rates, and opening more warehouses. It can also pass on some of those expenses to its customers.
Why could the crisis solve Costco's biggest problem?
In the first half of fiscal 2026 (which started last September), Costco's adjusted net sales (excluding fuel and forex) grew 6.5% year over year, its number of warehouses increased 3% to 924 locations, and its number of cardholders rose 5% to 147.2 million.
However, its global renewal rate dropped from 90.5% at the end of fiscal 2025 to 89.7% in both the first and second quarters of fiscal 2026. It mainly attributed the slowdown to lower renewal rates among its younger "digitally signed" members, who enrolled online rather than at a warehouse. To stabilize that rate, Costco has been rolling out more targeted digital communications, promotions for ancillary services, new perks, and auto-renewal features.
Costco believes that as those younger members become more familiar with its additional services and perks, they'll be less likely to cancel their new memberships after a year. However, the recent surge in gas prices gives those members a very compelling reason to keep their memberships -- which could easily pay for themselves at the pump after a few months. It's even planning to open its first stand-alone gas station this June to expand beyond its warehouses.
Costco's stock still looks pricey at nearly 50 times forward earnings, but it could deserve that premium this year as soaring gas prices generate strong tailwinds for its business.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.