Costco Wholesale Corp (COST) Q3 2025 Earnings Call Highlights: Strong Growth in Net Income and ...

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Fri, May 30, 2025, 1:07 AM 4 min read

Net Income: $1.9 billion or $4.28 per diluted share, up more than 13% from $1.68 billion or $3.78 per diluted share last year.
Net Sales: $61.96 billion, an increase of 8% from $57.39 billion last year.
US Comparable Sales: Up 6.6% or 7.9% excluding gas deflation.
Canada Comparable Sales: Up 2.9% or 7.8% adjusted for gas deflation and FX.
Total Company Comparable Sales: Up 5.7% or 8% adjusted.
E-commerce Comparable Sales: Up 14.8% or 15.7% adjusted for FX.
Membership Fee Income: $1.24 billion, an increase of $117 million or 10.4% year-over-year.
Gross Margin: 11.25%, up 41 basis points from 10.84% last year.
SG&A Rate: 9.16%, higher by 20 basis points from last year's 8.96%.
Warehouse Openings: 9 new warehouses opened, with plans for 10 more in the fourth fiscal quarter.
Paid Household Members: 79.6 million, up 6.8% year-over-year.
Executive Memberships: 37.6 million, up 9% year-over-year.
Capital Expenditure: Approximately $1.13 billion in Q3, with full-year CapEx estimated over $5 billion.

Warning! GuruFocus has detected 6 Warning Sign with COST.

Release Date: May 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Costco Wholesale Corp (NASDAQ:COST) reported a strong increase in net income for the third quarter, reaching $1.9 billion, up more than 13% from the previous year.
The company opened 9 new warehouses in the third quarter and plans to open 10 more in the fourth quarter, indicating continued expansion.
Kirkland Signature brand sales outpaced overall sales growth, with a 50 basis point increase in sales penetration year-over-year.
E-commerce sales saw a significant increase of 14.8%, with Costco Logistics contributing to a 31% increase in big and bulky item deliveries.
Membership fee income grew by 10.4% year-over-year, with a high renewal rate of 92.7% in the US and Canada.

Negative Points

Costco Wholesale Corp (NASDAQ:COST) faced a $130 million LIFO charge in the quarter, negatively impacting gross margins.
Foreign exchange rates negatively impacted the translation of international net income to US dollars, with a $35 million impact in Q3.
The company experienced a decrease in renewal rates due to digital memberships, which renew at a slightly lower rate.
SG&A expenses increased year-over-year, driven by investments in employee wages and new warehouse openings.
Tariffs and inflation in nonfood items led to increased costs, resulting in a $130 million LIFO charge for the quarter.

Q & A Highlights

Q: Simeon Gutman from Morgan Stanley asked about Costco's pricing strategy and its impact on unit volume. A: Roland Vachris, President and CEO, explained that Costco continues to invest in price reductions, especially as key commodity prices fall. This strategy has improved their competitive position, and they remain committed to lowering prices where possible to benefit members.

Q: Christopher Horvers from JPMorgan inquired about the impact of tariffs and nonfood sales growth. A: Roland Vachris noted that proactive inventory management helped mitigate tariff impacts, allowing Costco to maintain or slightly increase prices. Nonfood sales benefited from strategic inventory moves, particularly in categories like furniture and appliances.

Q: Michael Lasser from UBS asked about the sustainability of Costco's growth and potential limitations in the U.S. market. A: Gary Millerchip, CFO, highlighted that while some warehouses are high-volume, Costco is strategically opening new locations to alleviate pressure and improve member experience. They continue to see growth opportunities in less mature warehouses.

Q: Scott Ciccarelli from Truist Securities questioned the consistency of Costco's EBIT margin growth. A: Gary Millerchip emphasized that Costco focuses on long-term growth rather than quarterly fluctuations. They aim to drive member value through global buying and Kirkland Signature growth, which supports margin improvements over time.

Q: Zhihan Ma from Bernstein asked about the LIFO charge and its future impact. A: Gary Millerchip explained that the LIFO charge reflects current inflation rates, particularly in nonfood items. The charge is an estimate based on year-end inventory costs, and future charges will depend on inflation trends and tariff changes.

Q: Gregory Melich from Evercore ISI inquired about digital sales growth and Costco Logistics. A: Gary Millerchip stated that digital sales account for about 8% of total sales, with Costco Logistics handling 20-25% of deliveries, primarily in big and bulky items. They see continued growth potential in digital engagement.

Q: Charles Grom from Gordon Haskett asked about technology efforts at the checkout and extended gas station hours. A: Roland Vachris mentioned successful tests of digital membership cards and Scan and Go technology to expedite checkout. They are also considering extending warehouse hours, similar to gas stations, to enhance member experience.

Q: Kelly Bania from BMO Capital Markets questioned inventory planning and the impact of tariffs on pricing. A: Gary Millerchip noted that Costco remains agile in managing tariffs, working with suppliers to offset impacts and exploring domestic sourcing options. They focus on delivering value to members while navigating a dynamic environment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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